Found at: https://medium.com/@cdixon/the-internet-economy-fc43f3eff58a#.lr5p5s5c7
Author: Chris Dixon
The Internet Economy
We are living in an era of bundling.
The big five consumer tech companies — Google, Apple, Facebook, Amazon, and Microsoft — have moved far beyond their original product lines into all sorts of hardware, software, and services that overlap and compete with one another.
But their revenues and profits still depend heavily on external technologies that are outside of their control.
One way to visualize these external dependencies is to consider the path of a typical internet session, from the user to some revenue-generating action, and then (in some cases) back again to the user:
When evaluating an internet company’s strategic position (the defensibility of its profit moat), you need to consider:
1) how the company generates revenue and profits,
2) the loop in its entirety, not just the layers in which the company has products.
For example, it might seem counterintuitive that Amazon is a major threat to Google’s core search business. But you can see this by following the money through the loop: a significant portion of Google’s revenue comes from search queries for things that can be bought on Amazon, and the buying experience on Amazon (from initial purchasing intent to consumption/unboxing) is significantly better than the buying experience on most non-Amazon e-commerce sites you find via Google searches.
After a while, shoppers learn to skip Google and go straight to Amazon.Think of the internet economic loop as a model train track.
Positions in front of you can redirect traffic around you. Positions after you can build new tracks that bypass you.
New technologies come along (which often look toy-like and unthreatening at first) that create entirely new tracks that render the previous tracks obsolete.There are interesting developments happening at each layer of the loop (and there are many smaller, offshoot loops not depicted in the chart above), but at any given time certain layers are industry flash points.
The most prominent recent battle was between mobile devices and operating systems. That battle seems to be over, with Android software and iOS devices having won.
Possible future flash points include:
The automation of logistics.
Today’s logistics network is a patchwork of ships, planes, trucks, warehouses, and people. Tomorrow’s network will include significantly more automation, from robotic warehouses to autonomous cars, trucks, drones, and delivery bots. This transition will happen in stages, depending on the economics of specific goods and customers, along with geographic and regulatory factors. Amazon of course has a huge advantage in logistics. Google has tried repeatedly to get into logistics with little success. On-demand ride-sharing and delivery startups could play an interesting role here. The logistics layer is critical for e-commerce, which in turn is critical for monetizing search. Amazon’s dominance in logistics gives it a very strong strategic moat as e-commerce continues to take market share from traditional retail.
Source: The Internet Economy — Medium