Followups: Three’s company among Shopify, Amazon, and Etsy
The following highlights provided by Annotote: Don’t waste time and attention, get straight to the point. All signal. No noise.
Differentiating between aggregators and platforms
by Adventures in Consumer Technology 2019.11.01
Defining aggregation, externalization, commoditization, and differentiation
Tech’s false idol: Aggregation Theory and the Netflix foil
by Adventures in Consumer Technology 2019.11.12
The myth of zero marginal costs and its systemic implications…
Tweetstorm: Digging deeper into Shopify vs Amazon, The Janus Rule, the Misjudgment of Solomon, and the refined Moat Map/Aggregation Theory
What is a tech company?
by Ben Thompson (Stratechery) 2019.09.03
[Software has] all of these characteristics:
• Software creates ecosystems.
• Software has zero marginal costs.
• Software improves over time.
• Software offers infinite leverage.
• Software enables zero transaction costs.
The question of whether companies are tech companies, then, depends on how much of their business is governed by software’s unique characteristics, and how much is limited by real world factors. Consider Netflix, a company that both competes with traditional television and movie companies yet is also considered a tech company:
• There is no real software-created ecosystem.
• Netflix shows are delivered at zero marginal costs without the need to pay distributors (although bandwidth bills are significant).
• Netflix’s product improves over time.
• Netflix is able to serve the entire world because of software, giving them far more leverage than much of their competition.
•Netflix can transact with anyone with a self-serve model.
Netflix checks four of the five boxes.
Tweetstorm: Etsy CEO and CFO on quarterly earnings conference call (2019q2)
by Paul Barnes (@lennyice) 2019.09.05
Neither and New: Recent lessons from Uber and WeWork have redefined Aggregation Theory for tech companies that interface with the physical world
by Ben Thompson (Stratechery) 2019.09.25
Vision Fund may have confused “big capital needs” with “big opportunity”. What is striking about the firm’s portfolio is the paucity of “tech companies”. Almost everything falls in the “Neither and New” category defined by Uber: entire categories like real estate and logistics are defined by their interaction with the physical world, almost everything in the consumer category uses technology to enable real-world services, and the other major category, fintech, by definition needs huge amounts of capital. Most of these companies may have income statements that seem attractive in isolation, but when viewed from a total revenue perspective (i.e. the equivalent of gross bookings in the case of Uber) in fact have extremely low gross margins (relative to tech companies) and very high marginal costs…
Going forward I plan to be a lot more skeptical about other tech startups that interface with the real world and the attendant drag on margins that follows; I am not saying that the category isn’t viable, and technology truly makes these companies different than the incumbents in their space, but they are not necessarily tech companies either. Neither, and new.
Shopify and its Strong Competitive Advantages Continue to Take Market Share
by Travis Wiedower 2019.10.29
On the Q2 2019 conference call, Shopify’s COO explained how Fulfillment Network ties in with Shopify Capital and the entire operating system ecosystem: “[I]f we know how much inventory they have… we can make faster, smarter, more intelligent capital decisions. But all these things fit together… We’re beginning to see what we have been talking about [with] this first global retail operating system where merchants come to Shopify and whether it’s housing their inventory, shipping out their products, capital, shipping labels or payment opportunities, we want to do more for these merchants once they come onto the platform and so you are seeing more of that now”…
[B]ecause Shopify limits their basic features, they need more third-party app developers to fill in that functionality, which kicks in a network effects flywheel. Knowing Shopify has more merchants that could potentially need their apps, more developers are attracted to Shopify as opposed to their competitors. This results in more apps, more competition, and thus better options available for the merchants. Having the largest app store means Shopify is more likely to have the best functionality because there is more competition than on other e-commerce platforms. Shopify having the most scale means they attract the most third-party developers. Essentially, those developers compete with each other to make Shopify better. This creates strong barriers to scale for Shopify’s smaller competitors attempting to catch up. These network effects are strengthened by the high switching costs of Shopify users.
A Framework for Regulating Competition on the Internet: Platforms vs Aggregators; antitrust/anticompetitive implications; and the applied theory of regulatory solutions
by Ben Thompson (Stratechery) 2019.11.09
The most important place to start is by pointing out [that the original Aggregation Theory definition] makes what I now believe is a critical mistake: it conflates platforms and Aggregators. In fact, I believe platforms and Aggregators are fundamentally different entities, and understanding how and why they are different is the single most important task facing would-be regulators…
Here is a way to visualize the difference:
• Platforms facilitate a relationship between users and 3rd-party developers…
• Aggregators intermediate the relationship between users and 3rd-party developers…
The potential impacts on competition by Platforms and Aggregators are broadly similar, differing mostly by degree…
• Vertical foreclosure…
• Rent-Seeking…
• Tying/Bundling…
• Self-Dealing…
This is where the distinction between platforms and Aggregators is critical. Platforms are the most powerful economic and innovation engines in technology: they create the possibility for products that never existed previously, and are the foundation for huge amounts of innovation. It is in the interest of society that there be more and larger platforms, not fewer and smaller. At the same time, the danger of platform abuse is significantly greater, because users and 3rd-party developers have no other alternative. That means that not only are anticompetitive actions unfair to products that already exist, they also foreclose the creation of an untold number of new products. To that end, regulators should simultaneously encourage the formation of new platforms while ensure those platforms do not abuse their position. From a practical standpoint, this means that platforms should have significant latitude in mergers and acquisitions, but significant scrutiny in terms of vertical disclosure, rent-seeking, bundling, and self-dealing. Apple [and its iPhone econsystem] is the pre-eminent example here… the combination of Apple’s total control over 3rd-party app installation and rent-seeking on in-app payments has, in my estimation, stunted innovation and opportunity in the app ecosystem.
Aggregators are different [because] the incentives are warped from the beginning: 3rd-parties are not actually incentivized to serve users well, but rather to make the Aggregator happy. The implication from a societal perspective is that the economic impact of an Aggregator is much more self-contained than a platform, which means there is correspondingly less of a concern about limiting Aggregator growth. For the same reason… [t]hird parties can — and should! — go around Aggregators to connect to consumers directly; the presence of an Aggregator is just as likely to spur innovation on the part of a third party in an attempt to attract consumers without having to pay an Aggregator for access… It follows, then, that regulatory priorities should be the opposite of platforms: given that Aggregator power comes from controlling demand, regulators should look at the acquisition of other potential Aggregators with extreme skepticism. At the same time, whatever an Aggregator chooses to do on its own site or app is less important, because users and third parties can always go elsewhere, and if they don’t, that is because they are satisfied…
[T]he three regulatory issues that I implicitly suggested deserve more attention in this piece: Apple’s App Store policies, Facebook’s acquisitions, and Google’s third-party advertising offerings. None of them fit under a popular conception of a monopoly… That doesn’t mean harms don’t exist, though[.]
Amazon’s advertising strategy and services, explained
by Adweek 2019.12.17
Are Amazon Stores a faceless platform that’s Bezos’ response to Shopify…?
Amazon Stores is a free self-service offering that allows brands to create personalized pages, URLs and brand experiences on Amazon.com.
Amazon says stores help customers discover products and give advertisers a better understanding of their sales and traffic sources… give brands more control over the customer experience as they can direct shoppers to sections and products [and] help brands that don’t sell on their own websites offer more of a direct-to-consumer (DTC) experience… But stores are mostly for big brands with the resources and the content for it…
“You can tell your story, show your whole catalog, get your own URL, and if you want to have ads on Facebook or Google or Instagram or any other channel where you can link to a website, you can run them and drive them back to Amazon”…
Newly announced Shopify Capital will provide starter loans for new stores and merchants
by Anthony Bardaro (@anthpb) 2020.01.14
What Stratechery’s Ben Thompson Gets Wrong about Netflix
by TMT and Chill (@MasaSonCap) 2020.02.16
Ultimately, I think Ben’s view of Netflix is another example of how tech analysts, viewing Netflix through a tech lens, are more bullish on Netflix than media analysts that spend more time analyzing the media industry and Netflix’s main competitors [of whom] there aren’t any major streamers going for [a small number of] subscribers. They’re all going for scale and most already have it…
[A]ny implication that Netflix owns all its content is simply incorrect. It won’t be true in the future either, as Netflix continues to sign deals for licensed content, most notably a massive deal for Seinfeld rights starting in 2021… Netflix doesn’t own old shows, as it just started in the content creation business…
The idea that Netflix’s scale and monetization advantage will result in “all the top talent” coming to them has been thoroughly debunked and bulls should stop repeating it…
But Netflix is not [“the new cable company”] that every household will have, like they used to all have cable. Netflix is simply another “channel” the same way that Disney+, Hulu, HBO Max, Apple TV+, Peacock, Amazon, Discovery’s streamer and more will be “channels.” Consumers will pick and choose what streamers they want each month depending on which has the best content for them. Many will choose Netflix, but many others will eventually move on from Netflix as competitors launch and their favorite shows leave for other streamers.
More analogs for the Janus Rule’s platform vs aggregator duality: Elasticsearch ($ESTC) vs Google Search ($GOOGL)
by Anthony Bardaro (@anthpb) 2020.02.19
Amazon expands its delivery and logistics business deliveries to serve its rivals, taking an even larger tax on even more of the supply chain
by The Financial Times (FT) 2021.08.03
Amazon Multi-Channel Fulfillment (MCF) is a lesser-known subdivision of the company’s highly successful Fulfillment By Amazon (FBA) programme. Where FBA stores, packs and delivers to Amazon customers, sometimes in as little as a day, MCF offers much the same for sales on other websites, such as Walmart, eBay, Etsy, Shopify and several others.
Sellers gain the convenience of keeping their stock within one system, while Amazon grabs a slice of its competitors’ business — leveraging the immense capabilities of its delivery network, the capacity of which has more than doubled in the past two years.
MCF has existed in some form since 2007, but Amazon is now pricing it more competitively with other logistics providers; entering into new software partnerships to promote and streamline its use; and implementing workarounds designed to circumvent the objections of competitors who would prefer Amazon did not deal with their customers.
Check out Annotote, the knowledge network that gives you highlights of everything you need to read and lets you annotate anything you want to save or share:
