Discover more from Course Notes: Continuous Business Learning
What Makes Tech Companies Different
European Straights, 2020-01-22
Facts and opinions
Digitization happens in many steps. Startups multiply —> … —> commoditisation of everything. At every step incumbents are in denial.
Bias: most people while analysing something focus on the commonalities, not differences [as they should]. Hence the false analogies and benchmarks.
Many traditional businesses have diminishing return to scale —> become oligopolies —> their infrastructure becomes vulnerable
Every of such businesses hopes for Amazon’s reversal in returns to scale.
Completely ignore the network-effect advantage
And its supplementary businesses: ads, AWS, etc.
While opening warehouses is a less profitable activity, the operation of them [faster delivery, higher volumes, network effect, more data, etc.] is highly profitable.
DEF: Northern side: diminishing returns; Southern side: increasing returns to scale.
As long as the southern side returns are higher than the northern side keep scaling
Amazon enables participation of users (incl. observing their behaviour) and tries to act on it.
Things to reflect on
Can you map out all the components of your value chain and assess their contribution?
What about the contribution to the overall returns to scale?
Are there ways to increase the weight of the Southern side [i.e. invest into a scalable component] to maximize increasing returns to scale, and at what cost?