> That said with the benefit of more hindsight I think the reason there are no more Googles is that FAANG has a stronghold on the largest technology markets.
And the FAANGs are willing to pay very large amounts of cash to acquire promising startups.
EDIT: Also why is it that the majority of the large tech companies are essentially marketplaces? Is there really that much friction in traditional markets (physical goods, movies, books, ads[!], apps) to fund their spectacular rise?
I would say yes. Ronald Coase did some excellent work to explain how transaction costs get in the way of optimizing economic activity among and within firms. Traditional marketplaces would clearly have higher transaction costs than these newer marketplaces. Search costs are much higher, coordination costs are much higher, and data analysis is much harder. Tech has a huge advantage in making all three of these things much lower and thereby making transaction costs much lower. Heck, just by not accepting cash, I bet they make transaction costs significantly lower than the traditional marketplaces. Heck, just by not having to operate point-of-sale card swiping devices, I bet they significantly lower the transaction costs too.
He won a Nobel Prize if that matters. I think his two seminal works, “The Nature of the Firm” and “The Problem of Social Cost” do really well to explain why tech is winning so much compared to traditional marketplaces. Especially “The Problem of Social Cost”, which explains how externalization of transaction costs creates advantageous and unfair effects.
I like the Coasean analysis. Now someone needs to build the Uber for unifying affected populations to demand rents for suffered negative externalities.
Marketplaces: Amazon, Alibaba, eBay, Etsy, Shopify, Craigslist, MercadoLibre, Uber, Lyft, Didi, Pinterest, Booking, Upwork, Fiverr, Redfin, Zillow, Expedia, Trip.com, Yelp, TripAdvisor, Groupon, and a few other small players.
It's not close at all, marketplaces are the modest minority of large tech companies, both in terms of market value and particularly when it comes to sales (giants like Sony, Dell and HP have relatively smaller market values and massive sales and large numbers of employees).
Many of those are hardware/network companies. They don't necessarily fall into the type of startups being funded now or going forward. Companies like Cisco are important but they represent the past.
Apple, Nintendo is a mix.
Paypal, stripe, square are products for marketplaces.
Netflix is a pass to a movie marketplace. Same for spotify. Groupon is a marketplace.
> everyone wants to get rich by renting shop space to shovel sellers.
That would entail having to own and maintain physical assets (assuming you mean physical shops rather than virtual shops). Isn't the preferred model now to be a "technology platform" that connects people with available shovels to people in need of shovels?
I meant renting virtual shops - i.e. being the platform. This was a riff off a popular saying that during the gold rush, it's not the people who went looking for gold that got rich, but those selling shovels and pickaxes.
>Also why is it that the majority of the large tech companies are essentially marketplaces?
They may earn money from a marketplace, but the reason is not because they have a marketplace. They earn money because one they did or do something that others can't or were too late to, such as creating hardware and software people want, creating and operating online services people want (Maps, Cloud Services), infrastructure for retail, or a network where everyone is and can provide some level of proof for identity or credibility.
I think supermarkets are well run because they are highly competitive and you go every week so if you see it as a prisoner's dilemma where they "fulfill the brand promise" or "don't fulfill the brand promise" they get punished then they don't fulfill it so they have a reason to fulfill it.
Thus Amazon is going to have a really tough time in that sector, but other parts of the retail sector tend to have you come into the door infrequently enough or are in uncompetitive markets so that they don't get punished for failing.
It's too common for people to blame the victim here, or say that people are asking too much but that's just plain wrong.
Some examples:
* That time I went to K-Mart to buy three numerals for my mailbox but they didn't have the "2" in stock.
* That time my wife bought a bra at Target that had a nice print but had a completely nonsensical design that wouldn't be comfortable on anyone
* Buying clothes at Target can be really hit or miss. I bought a shirt there once that was great but so often I find things that don't really fit, are poorly constructed, I can't stand the style.
* Same with shoes at WalMart. At best you might go there and find a $20 shoe that is similar to an $100 shoe from Brooks, not quite as good, but certainly not five times worse. Sometimes they only have crap
* Inevitably in the early spring I still need cold weather equipment such as electric space heaters (sometimes desperately, as in to keep animals alive) but Home Depot, Agway and all of those other stores quit stocking it.
* Small storeowners decide they won't get any customers in their last hour so they go home early; so they've decided that the customers that do come will go to a big box store next time
* Years ago Staples used to stock only junk brands for cordless phones and similar things (e.g. vtech); today Amazon pushes no-name products from Chinese suppliers which are occasionally excellent but often junk
A common factor in those failures is that the stores don't get feedback. K-Mart never knew they lost the sale of a "4" and "7" because they didn't get "2". The small storekeeper doesn't realize that "nobody will come in" is a self-fulfilling prophecy, etc.
People also discount the idea that "the customer is always right" to normalize bad behaviors such as not stocking space heaters when you need one right now for your chicken house -- somehow it is my fault for needing heat at the end of the cold season instead of the beginning.
>People also discount the idea that "the customer is always right" to normalize bad behaviors such as not stocking space heaters when you need one right now for your chicken house -- somehow it is my fault for needing heat at the end of the cold season instead of the beginning.
This doesn't make any sense to me. Stores have limited space for inventory, and they have to make decisions about what the best use of that space is. It's very well possible it the probability of earning a profit on a heater at the end of a cold season is too small to merit stocking it. The store has no obligation to provide you with what you need at exactly the time you need it, so the concept of "fault" doesn't make sense to me in this scenario.
"Customer is always right" is a nonsense saying in my opinion. I always have informed my staff to show the customer the door if they're unnecessarily wasting their time.
> And the FAANGs are willing to pay very large amounts of cash to acquire promising startups.
But I think FAANGs also drain the talent pool for startups by paying very high salaries (& partially equity) to employees such that startups have a hard time to competing on this level. At least it feels it's getting worse than, say, few years ago.
Those high salaries though arguably just allow people to build nest eggs to go the startup route whenever they want.
The real challenge is that, rationally, startups an extremely large gamble on a lottery where your expected value is < 0. Most startups fail or take too long to get acquired and, unless you’re a founder/invested, you’re not seeing the really big amounts that make it really worth it (and sometimes even then). Fundamentally the challenge is that as a regular employee (even early) your stake is too small. I think startups can attract talent more easily by taking the salary disparity and matching it with stock (ie if you’re making 300k and the startup is paying 150k, for the first few years the startup should treat you like you’re investing at least 100k into the company because that is what you’re doing with your time).
As an anecdote, I have a friend who was working at a startup that got acquired by Google recently (he’s a Staff SWE so he’s making really good salary). He noted if he had just stayed at Google instead of working at a few startups over the years he would have been at least break-even or better based on salary + google RSU performance over that time. My personal experience with startups was a bit different. While the acquisition I went through was larger for me at the time, the biggest impact was that it pushed me into a far higher salary band. Startups and smaller companies can be a better way to “level up” some times than the traditional corporate ladder climbing.
It’s not unreasonable by the time you’re 30 or 40 that you have sufficient funds that the team or project is more important to you than a salary for a few years, especially since it’ll always be there later anyway.
My theory is that the big firms can do this because those relatively fixed lob or costs over huge user bases. Smaller companies just don’t have the leverage.
I also think this applies to internal applications at huge enterprises. The number of users for any given internal application is small, so you can’t spread the development costs out very far. You have to connect the initiative to something that impacts the whole firm, the whole customer base to really invest in it. Even then you’re dealing with a user base that is way smaller than the big tech firms enjoy, so you still get outspent... unless you have dramatically better margins.
And the FAANGs are willing to pay very large amounts of cash to acquire promising startups.
EDIT: Also why is it that the majority of the large tech companies are essentially marketplaces? Is there really that much friction in traditional markets (physical goods, movies, books, ads[!], apps) to fund their spectacular rise?