Possible explanations for the growth of winner take most includes the diffusion of new competitive platforms (e.g. easier price/quality comparisons on the Internet), the proliferation of information-intensive goods that have high fixed and low-marginal costs (e.g., software platforms and online services), or increasing competition due to the rising international integration of product markets. New technologies may also have strengthened network effects and favored firms that are more adept at adopting and exploiting new modes of production.
The main point of their paper is that the increasing prevalence of winner-take-most firms is reducing labor’s share of income. However, other research shows that these firms pay more than other firms.
The way I see it, the intuition is that the returns to implementation of superior business methods have increased. It is hard to compete with Google in search or with Amazon in logistics. (As an aside, I wrote long ago that I thought that WalMart would wipe out Amazon, because WalMart would figure out how to build a web site before Amazon figured out logistics. That prediction turned out to be wrong.)
Think of cultural intelligence as a factor of production within a business. The firm’s owners reap most of the benefits from its cultural intelligence.
I do find it Economically unusual how much the internet companies solidify around a single dominant firm when the ‘fixed’ capital expense is low. These internet companies are not like Utility or Airlines where the high fixed capital cost keeps entrants out. In terms of social media, how did Social Media get dominated so quickly around Facebook? I think there is something of the economic QWERTY keyboard theory here (Tech usage has a learning curve for users so users simply learn the dominant technology.) (Yes, I took Econ in the early 1990s…)
The main point of their paper is that the increasing prevalence of winner-take-most firms is reducing labor’s share of income. However, other research shows that these firms pay more than other firms.
This is easy to explain. With less firms and higehr profits, the leader can pay the most for the best people and work them into the ground. (Notice some companies cover egg freezing as a health benefit for instance so their employees don’t become parents until they are 41.) But less firms covers less of the labor force. I suggest reading Steve Bannon who hates tech firms for employing so few people and not contributing to society.
You realize that the QWERTY keyboard is actually in practice, a pretty good layout. The difference in time between it and Dvorak is pretty small.
http://www.economist.com/node/196071
It does have some long reaches, though, which are a pain for small hands. I suspect that is one reason why Steven Jay Gould and Jared Diamond, who both learned to type early, have both written essays repeating the old wives tale of how QWERTY only survives because of lock-in effect.
It appears QWERTY was the optimal during the typewriter days versus the computer days and nobody has done a major study since then. And at this point:
1) Most kids learn basic typing by 12 with heavy computer use so it is almost impossible to have ‘true’ test anymore.
2) If QWERTY is ~98- 99% compared to the best, lord knows how much effort it would take to change. There is simply too much cultural ‘sunk’ cost here.
I don’t find it odd that they solidify around one company. There are strong network effects around these businesses.
Google gets better each time a user searches because it gets another data point about what is important and thus becomes more valuable to other users.
Facebook becomes more valuable with each additional user because that is one more potential connection for everyone else.
Netflix gets more valuable with each user because it gets more data on what kind of shows it should acquire or produce. As it acquires more content it becomes incrementally more valuable for each user and more likely to draw in new users.
Airbnb. Amazon, Uber and so on have similar stories. All of them create virtuous cycles that attract more and more users.
As an aside, I wrote long ago that I thought that WalMart would wipe out Amazon, because WalMart would figure out how to build a web site before Amazon figured out logistics. That prediction turned out to be wrong
I think Matt Yglesias point why WalMart can’t beat Amazon on the web site because most of WalMart profits come from the store. So when it comes to spending capital and business focus, the stores win 90% of the battles for the CEO favors. I have seen this true in our office (Not WalMart). (Also this is the reason why Amazon will have a hard time with stores!)
You missed that Amazon and Walmart have completely different logistics models. The website is the simplest part of Amazon’s infrastructure. People who have gone to Walmart and came back said, essentially, that Walmart’s leadership isn’t terribly tech nor logistics savvy for the kind of logistics Amazon does.
The website – or rather AWS – is also a product for Amazon. They have something akin to the role of a flea market operator, where anyone with a thing to sell can open up a booth on Amazon to sell it.
Etsy and other competitors have similar, but Amazon refers to its own more. This is sort of like an SEO edge.
This Paul Graham essay is provocative even though I’m not really convinced that he’s on the right track.
Somewhere he wrote that there’s a point where you just add something, add more of something. Just add more servers to your startup–because servers are not the key constraint.
At some point you would just add workers to your manufacturing plant–hire them out of high school and, apparently, pay them for thirty years.
Those days seems to be gone now.
http://www.paulgraham.com/re.html
Someone said “A good job is one that pays you more than you are worth.”
Probably Murray somebody. with a Jewish last name.
= – = – =
In that sense, good jobs are hard to find these days.
The other issue is that good jobs used to make low productivity workers become highly productive.
Now, more firms can just avoid hiring them altogether.
I have direct experience with this (Microsoft in the ’80s and ’90s)
Part of what happens is that a technology and the work associated with it are new, and there’s a terrible shortage of people who can build such things. There may also be a shortage of people who can explain them to non technical users, sell them, and so on. So the ventures are very pressed to recruit skilled people. Hence the very high compensation to a small group.
There’s a period where A really is way better than B.
Later there is a “phase change” and A and B and C are equivalent – they are mature. So people buy/use whichever ones their friends/counterparties use. Facebook isn’t the only or necessarily the “best” social platform, but it’s by far the largest and at some point that makes it effectively best.
The real race is for the startups to be ahead when that phase change occurs.
After the phase change, the technology is mature, and new entrants simply cannot win by being ‘better’ (there is no such thing) at the same niche.
The next waves are whole new structures – snap and instagram rather than some head butting competitor to facebook
The dislodger of amazon won’t be some similar looking thing – it’ll be some wildly different scheme (that reads your mind or asks your dog what you want) rather than trying to out amazon amazon.
Methinks you are right.
Nassim Nicholas Taleb said something along these lines in _The black swan_. Google’s competition comes not from other firms like it, but from firms that currently have not been founded or that are are now small and obscure.
That argument is Schumpeterian, methinks. It often works.
I wonder…what happens when that process stops? Maybe it won’t, and we are headed toward the Singularity.
If not, I wonder where we are headed. Not 1984, but perhaps more like _Brave New World_.
We are basically clever primates. Our EEA (Environment of Evolutionary Adaptation?) is not what we are living in now, so it’s hard to imagine really what lies ahead.
WalMart *does* have a website. We (in this household) use it for things where the “Ship to store” option makes the most sense, largely bulky things like televisions. That way you get to choose when you’ll take delivery rather than leaving a television out on the front porch for half a day.
WalMart is a negative (Red State) social status marker for some people, the stores are arguably too large and hard to navigate and it’s an interesting exercise in collision avoidance. It resembles a zombie apocalypse at times. But none of that drives us into the arms of Amazon.