The Unique Thing About the Internet
The unique thing about the internet is abundance.
- The internet broke down boundaries. You can access unlimited things outside of your geographical location.
- Same as point 1, but with people.
- The internet has unlimited real estate. You can build as much stuff as possible, as big as possible. There are no space constraints.1
Fundamentally, all of #1, #2 and #3 are about abundance.
The biggest companies that emerged from this wave exploited the unique value proposition unlocked by the internet. Google helps you organize information all over the internet, because there is a bunch and you are now connected to all of them (#1). Meta helps you connect to people and content creators all over the internet (#2). Amazon is an "everything store," whose selection and convenience wasn't possible before the internet (#1, #3).2 Netflix is like Amazon, but for movies and TV (#1, #3). Airbnb and Uber are similar (#1). We can do this exercise for more companies.3
Nothing exemplifies the claim that the Internet gave the gift of abundance better than the fact that the convergent UX for the internet is the "infinite scroll". Facebook pioneered the infinite scroll, when sites before that (including Facebook) tried to mimic a newspaper layout. TikTok is an infinite scroll of short form videos, etc.
Does it make sense to bet against abundance?
No. I don't think so. Duh–given what we've just discussed. But, believing in counterintuitive things is sometimes useful, and some very well-resourced people (no fingers pointing whom) seem to believe otherwise.4 So, let me present their possible counter-case in its strongest form.5
Because of the abundant, global nature of experiences built on the internet, you can have a winning strategy by creating something differentiated like building a superior "local" experience. The local newspaper becomes even more valuable in the internet age. Meanwhile, your generic newspaper that covers everything can never cover as many things as well as the crowd-sourced internet. The key is to find some niche, and really become the best or only at that thing.6 I see this as a mass market vs quality distinction. Ben Thompson did not express it as such, but it was one reason he made his prescient (now correct) view that the only viable business model for content publishers, like writers, in the internet age is a subscription model on quality, specialized content.7 You can win abundance if you win on quality. There is a viable edge and strategy here.
There is a needle to thread, though. You might have a winning strategy, but what you win needs to be worth it. Mass market will always be big market segment. How successfully you go further upmarket (probably, because you're trying to differentiate on specializations) will depend on how much oxygen there is in that segment. What's the customer's appetite to pay for your products? What's the Total Addressable Market (TAM)? Or, how big is your niche? Consumer preferences change over time, but it's important to have an honest assessment. For example, your local farmer who sells at the farmer's market has a fairly differentiated product, but a small market size. Meanwhile, Hermès also has a differentiated product of unmatched craftsmanship, with a market that's apparently huge–Hermès market cap is ~300 billion euros today.
It's possible to go downmarket too, but that depends on whether you think the current mass market product has inefficiencies.8 The cut in price has to come from somewhere. If you go downmarket for a smaller market segment, that just seems like a strictly worse business than going upmarket for a smaller market segment.
In summary, you can try to win quantity, abundance, with quality.9 However, the lynchpin is whether the market segment that appreciates your quality is big enough. You might believe that you have a mass market segment. But, it's easy to confuse "anyone can use this" with "anyone will want to use this" (no fingers pointing whom either!). Knowing the latter requires much more field discovery and deep customer understanding.
Mental models
I wrote this as a summary but renamed it as "mental models", because that's how they're useful.
- With the introduction of each major technology, the production function–costs involved in building a product and sorts of products we can now build–experiences a change. That's not an overstatement, it's definitionally true.
- It's useful to understand how this production function has changed, as it will shape what the next product that dominates the mass market will look like and how you will succeed.
- For the internet, the change is in abundance (or increased quantity) expressed in many ways.
- The new products that dominate the mass market made use of the beneficial changes as rapidly and defensibly as possible.
- You can take a strategy to do something differentiated, but be wary and intellectually honest about how much oxygen there is in your market segment.
I know the natural follow-up question to ask in today's day and age is: what does the picture look like for AI? I am curious too. There are many good hints already in this direction, potentially enough for a next post? ;)
(If you like my writing about tech, see also Meta vs Amazon.com.)
As a computer scientist, I cannot pretend it's actually unlimited because there are database and server constraints, etc. There might be domain costs and platform limits too. But philosophically it's unlimited real estate.↩
That was the precise reason Bezos left behind his incredible career at D. E. Shaw–he was among the fastest growing young talent on track to becoming CEO if he stayed long enough–to start Amazon.↩
Stripe and Shopify empower entrepreneurs who want to exploit #1, #2 and #3. Figma empowers collaboration, which is an emergent property of #2 and #3. I put these examples here because it could be interesting to generalize and brainstorm what opportunities unlocked by the AI era are–maybe prompt for another post.↩
I started writing this piece because I thought they were dumb.↩
...before maybe dismantling it.↩
For the game theorists, if you take the set of strategies of offering abundance as a value proposition, a strategy that adopts every incremental exploitation of the internet's strength for abundance should dominate a strategy that does not. However, if you take a set of strategies "orthogonal" to providing abundance, then it's not clear that you lose by not leveraging the "best practices" that make use of the internet's features for abundance.↩
You can think about Temu or maybe even Costco here, which goes to show that the mass market segment need not be winners-take-all. It could be winner-takes-most, though, depending on the dynamics like network effects.↩
I love it when complex problems become super obvious, hopefully without simplifying excessively.↩