Incumbents are fighting back against disrupters
economist.com
economist.com
What I took from this article is that you can never beat incumbents by trying to offer a better version of their product. They already have immense institutionalized knowledge and economies of scale. You can only beat them by offering a different product that meets their needs better. Think Walmart vs Amazon. Online shopping is actually a completely different product.
An example today is the iPhone. There are a ton of competitors trying to offer a better version of the same thing, but iPhone share is only growing in the US. Is it possible to offer a product that better suits its niche of mobile general purpose computing? Maybe! But technology today is so capital and knowledge intensive that the kind of organization that can try is probably already about Apple-sized (Vision Pro?).
This is actually a great example, but not the way you intended it.
Amazon isn't beating Walmart. They haven't even dented Walmart's revenue[1]. They're just killing everyone other than Walmart.
Walmart is now unbeatable because they're so big, they can demand wholesale prices that no one else can. If Walmart wants to buy 100M tomatoes from you, you'd sell them barely above cost because otherwise you're stuck with more tomatoes than you could ever sell.
To put it another way: you can't compete with these companies because they abuse their market power (either directly or through regulatory capture), not because they're actually that good at anything.
It also important to note that a corollary of this argument is that incumbents will still dominate their own sector - IBM still dominates mainframes. What matters to incumbents is whether or not those sectors are still relevant after disruption - mainframes less so, in-person grocery and shopping maybe more so.
Abusing a monopoly is when you increase prices because you can. Offering lower prices is the opposite. If you can’t compete, then you’re in the wrong business.
To a first approximation, yes, but this also forces things like small farmers and retailers being unprofitable, and all the societal changes that come with that, and of course then the tendency for consolidation and the inherent risk of more monopolisation from that.
Free market is great when it's full and noisy and no-one is large enough to control or manipulate it, the aim should be to keep it in this state (because then keeping prices low falls out naturally without terrible second order effects)
Nobody is "forced" to be unprofitable. If a business is unprofitable it can shut down. You're putting half the no-win argument - when Amazon makes a big profit people complain they are too powerful. When they don't make a big profit, this is an argument that they've squeezed the supply chain too much. There is a tiny line here that is theoretically acceptable, and I doubt either side of the no-win argument agrees where it is.
And this isn't what is driving the consolidation, the monopolisation is probably being driven by credit. Big players get much sweeter deals when dipping into the pool of printed money. If credit was not the driving force then it'd be much less common to see big conglomerates and small nimble players would have an easier time. Like how in housing credit booms tends to put smaller buyers in a worse position because they only end up living in about the same house as they already would have managed anyway but they have to sign away more of their life to get it.
Check out the state of chicken farming, where chicken producers corral farmers take on huge amounts of debt to grow bigger to meet their requirements, then squeeze them hard, to the point of bankruptcy. The only winning move is to not play, but that means not selling to the buyers who control the market so likely losing the family farm. It's become just a matter of whether you lose it this year, or after a few years of churning under the producer's debt load.
There are numerous ways that a large monopoly can abuse their position of power such that the only real choice for smaller players is to play along in a losing game.
I’m not saying any or all of this applies to Walmart or Amazon necessarily, but it’s not an unambiguous good to lower prices when it is not supported by all the reality around it.
I don't see how this is a bad thing. If people want to buy cheap low quality products they should be able to.
It is not okay for a manufactured product built on the backs of slave/child labor/conflict to be sold in a market. There's a reason Conflict diamonds are verboten. There's a reason why it should be a big deal when a large industrial actor is found to be using these things as part of their production chain.
We cannot allow those that would sacrifice other's humanity to participate in our economy. Once you accept them, you've set the bar everyone else will quickly clamber to meet.
Edit: Found the previous discussion https://news.ycombinator.com/item?id=36630612
I don't. Our collective fetish to reduce prices to an absolute minimum has had nothing but terrible effects on pretty much everything.
It has increased poverty, it has decreased product quality, it has reduced the vibrancy and competitiveness of our economy, it has encouraged the worst aspects of our society.
And it hasn't made anything better for anybody. It's nothing but a collective self-destructive race to the bottom.
Talk is cheap. Show me the maths.
The traditional endpoint-consumer-facing side of the market is just one part of the transaction web.
In absolute terms, no, it isn't! Think "race to the bottom".
Coupled with the proper checks, low prices can be great.
Any supplier is free to bid on a Walmart request. They can walk away if it doesn’t make economic sense to them.
The Vlasic pickle story keeps coming up, but come on, Vlasic is huge, they knew what they were getting into.
If they were stupid enough to agree to lose money on every single jar of pickles, they should re-examine their business strategy.
Google tells me Walmart is 25.5% of all grocery sales. You can have a thriving business with the other 75% if you don’t think you can get a fair deal with Walmart.
They execute well to clear the competitive landscape. Then just well enough to prevent new competition from exploiting a subpar performance gradient.
Success grows fat off of easy cash flows instead of staying nimble. That's every major tech company and most big conglomerates.
If anything, the dollar stores represent more of a threat to Walmart.
The jump to being a five dollar store that the other one did is doomed to failure.
Why would you go 35min to Walmart if you just need 10 things when there's a dollar store 10 min away that's almost the same price as Walmart and much better shopping experience.
Walmart made a name for itself with its "rollback" program, where products would appear cheaper than competitors' because the SKU contained one less ounce/gram/unit. Dollar stores takes Walmart's own game to extremes; you buy a quart of watered-down bleach for $2, where buying an entire gallon (4x the volume) of the real thing would cost you $3 at Walmart.
Or, $20 for a 14-pack of Monster drinks at Walmart is a terrible deal when they're "just" $3 (each) at the gas station!
You see the same thing with people buying individual packs of cigarettes instead of an entire carton. The math works against them. They don't understand it.
There was a analysis, recently, that amongst users of the New York subway, the most common fare type amongst the poor was the pay per ride card. Even though it had the highest per-ride cost, it turns out that poor people living paycheck to paycheck simply cannot stump up the upfront cash to pay for the better deal. (As a result the new fare system combines both with automatic caps on pay as you go fares.)
I’ll let Prime expire and see if the ghost of Sam Walton can get me to go for WalmartPrime™.
Amazon Prime still cannot offer same day delivery.
But Walmart+ can.
As terrible as Walmart is, Amazon is a worse brand.
At this point, I'd rather direct my fund towards the ghost of Walton who during his life treated employees with respect versus a company that can only maintain profitability by treating workers terribly.
And if you avoid marketplace sellers they have quite a bit of everything, too.
Amazon around here uses UPS but if they stop doing that I will probably lean ever harder on Walmart.
If you limit it to only retail, Walmart probably comes out ahead.
Alas, them deciding to shut-down Book Depository means I can't purchase English/American books anymore free of customs-related taxes (I live in a Eastern European EU county), which makes me not purchasing those books at all (in many cases the taxes would end up doubling the purchase price, so it's not worth it). I'll never forgive Amazon for that.
For the same quality? With the same workers' rights? With at least ea liveable profit for their providers?
The point being, a FAANG can start from zero and beat you to 1 MM users even if they only noticed your product idea once you launched.
I would love for that not to be the case, but we see it everywhere. At least for things that are competitive to them.
It took meta 6 months from starting to work on it to making their public release
They are still missing features like a web version so they have been working at for 8 months now and still not "finished"
In my area, the Apple Store represents about 40% of the mall’s gross sales. Although part of that is more a function of the decline of malls, the store is expanding for the 3rd time.
Some aspects of androids are better computers, but certain the phone and communication part of them is far far behind.
* least bad. Out of two options.
With remote attestation there'll be no point in running android anyway. Might as well get an iPhone.
I don't know if this is due to more private funding, more acquisitions, regulatory capture, or what.
Despite living in the internet Information Age, it seems like it's less viable than ever to find public investors and Investments via IPO
https://www.google.com/amp/s/finance.yahoo.com/amphtml/news/...
Comparing the number of public companies around an IPO-fueled bubble isn't a fair comparison.
Extreme concentration in tech has sucked the air out the "digital revolution".
When all the tech infrastructure is controlled by less than a handful of conglomerates there is no meaningful transformation of any other sector that will not involve them. This creates resistance by other corporate interests and a stalemate.
Financial services is particularly interesting as a study case as it is almost 100% information processing, hence fully "disruptable". Why is it not happening?
The article paints a picture of inertia as the reason for stagnation in financial services, apparently oblivious to the skirmishes and tiptoing going on: The facebook/libra fiasco, user as client vs user as product business models, the apple/goldman tieup, privacy and commercial secrecy concerns around cloud use etc.
In fact the gazillion valuations of big tech is the market telling us that it expects they will swallow any digitally transformed sector.
For society to see a dividend from the digital revolution (seen eg in a number of major new enterprises that are fully transformed by tech), tech must get democratised. For as long as there is a racket that gets a 30% cut of all action there will be an eerily ominous quiet in the marketplace.
disruptability is inhibited by the amount of regulation in a sector, the more rules you have to follow the less likely you are able to find a profitable path to exploit that someone has not found before you because regulation limits the amount of paths available.
Many of the disrupters of industries over the past two decades are ones that managed to find a way to sidestep the regulation in the industry. When this occurs and regulation inevitably catches up the disruption turns out to no longer be as able to beat the incumbents as thought.
Sidestepping of regulation is often achieved because regulators don't care too much about regulating your disrupting innovation, the level of care that regulators have regarding innovations in their industry can be measured by how central the industry to the orderly functioning of society and the normal flow of power within it.
As an example - people don't care that much about the regulation of taxis and hotels because they don't really mean shit in the grand scheme of things. People care a lot more about regulating international trade or banking or investment, although from outside the industry, in the views of easily outraged observers, it might not seem like it.
Thus finance is one of the least disruptable fields, appearances to the contrary.
on edit: fixed typo
There are some further reasons that do provide a "moat" to incumbents (thus protecting against disruptability). Many parts of the financial and monetary system are effectively backstopped by the state/collective. The combination of poor oversight, confidence games, recurring bailouts and desire for political leverage means that over time the preferred pattern is to have a few opaque behemoths that operate in a close symbiotic relationship with the state.
Yet all these factors are minor in the scheme of things. Finance is like 15% of the economy. It is a huge sector with plenty of opportunity to innovate. Imho, the main reason financial services have not been digitally disrupted is that the sector is devoid of embedded technical DNA, the more so the higher up in the hierarchy. Even though it works exclusively with information, "IT" was always something outsourced to a department in the basement (and nowadays increasingly to the "cloud").
Combine that structural human capital weakness with big (ad) tech completely shaping the digital agenda, from AI chips to devices, to OSes, applications and network information flows and you get the current calm before the storm.
IT wasn't (and isn't) always something that sits on a basement, maybe for all the also-run banks. Global Markets has been and is full technology, for example (in banks and non-banks).
And there has been a huge amount of disruption in financial services, it is just a lot more self-disruptive than perhaps other sectors (and the US has a particular poor retail banking/payments system but don't assume that that is globally an issue).
But in core financial services (payments, savings and loans), covered by buzzwords like "fintech" or neobanks there has not been much qualitative change. See also the failure of much hyped "innovation" in the form of the various blockchain projects (which pressumably will now be followed by various "AI" projects). Trying to belatedly join the latest hype instigated by others is precisely the behavior of a sector that does not understand and own its information technology.
You also need to see the nods to hypes at least partially as signalling not as necessary acknowledging a lot of value there.
Financial services is particularly interesting as a study case as it is almost 100% information processing, hence fully "disruptable". Why is it not happening?
It's pretty depressing really.
One silver lining is the Fed got off it's fat ass and conjured up FedNow as an alternative to the slow ass ACH system.
I guess you are referring to App stores, and it is true there. Tech also includes websites, and they are not affected by this tax.
Alright, let me check how people access websites. Oh wait, > 90% controlled by three entities. In the EU this phenomenon has been termed "gatekeeping".
In effect the digital transformation of every other sector (the vast majority of the economy) must flow through this choke point.
I'm not sure I agree finance has not been disrupted. I can immediately think a few financial industry disruptions, some even outside incumbents. Fractional reserve banking, credit cards, asset backed securities, online payment providers, regulation, hedge funds are some things that have changed dramatically how financial business (some aspect of it) is done during the last century or two.
One thing that may hide all this is is that the ones currently shouting loudest about disrupting finance seem to have a serious lack of understanding what finance actually is and how it works, and until they do, I don't think they disrupt anything.
Yes, fully agree that over a larger horizon financial services have been evolving and innovating (not always in a controlled or beneficial manner).
It is also true that previous digital innovations (databases, spreadsheets and... powerpoints) have been adopted (as in bought / licensed) and were instrumental to enable all these innovations on the financial side.
What the financial sector did not realize is that as the information universe coelesces and, e.g., advertisers or retailers come to invent and dominate technological platforms innovation cannot happen with rented tools.
> the ones currently shouting loudest about disrupting finance seem to have a serious lack of understanding what finance actually is
the disconnect between (digital) technical and domain knowledge is exactly what I think is the problem
https://www.aei.org/carpe-diem/fortune-500-firms-1955-v-2016...
I think it’s not an unreasonable argument that the process of market disruption (over the past century at least) isn’t being driven by “the endless pursuit of profits that can only come from serving customers with low prices, high quality products and services, and great customer service” (LOL) but by some insane demographic changes occurring in the background of equally insane technological progress.
It actually seems quite delusional that, knowing about Moore’s Law/baby boomers/more than 5 tv channels, this person decided that customer service would be more important in deciding how the economy moves. Bonkers levels of autofellation, I say.
I don't know whether that's true or not, but it's notable that your article counts companies as "leaving" the list if they merge with someone else.
My Approach to suspect articles is to look for data that would either confirm or deny the claim in the article. Google article results are usually garbage so I look at image results to find actual data tables or charts. In this case, I found the link you posted by searching "Fortune 500 company turnover by year" and looking for line charts with a reasonable time frame.
Themselves? Of course not.
The government? They're the reason they're so big and powerful in the first place. Politicians are easily swayed if you have billions of dollars to convince them to do your bidding.
Everything is set up to favour cancerous growth once you reach a certain size, and there are no real failsafe mechanisms against that. Antitrust is useless if it is never invoked, for example.
I wish we'd start to notice how our legislative, judicial and executive branches of government have been failing us for decades on this matter, instead of just wondering "how the hell did it come to that?" and blaming "capitalism", whatever that means.
Adam Smith alone doesn't explain how a company can skirt around the rules of free market competition and grow to a trillion dollars. You need a lot of external help from people in power to get there.
Not that social issues aren't important, but the outcome of social issues never negatively affect the crony capitalists in power. Social issues are the opium of activists and pundits to distract the very same activists and pundits from decades of policy that only benefit the elite.
Raytheon LOVES when people fight about abortion rights.
Citibank LOVES when people fight about police reform.
None of these social issues actually matter if the entire middle class is ground to dust and scattered into the wind.
https://www.spglobal.com/marketintelligence/en/news-insights...
Hopefully some politicians will eventually realize they are put in power to serve the needs of everyone not just the rich that own stocks.
>In 2023, the percentages owning stock range from highs of 84% of adults in households earning $100,000 or more and about eight in 10 college graduates and postgraduates to a low of 29% of those in households earning less than $40,000.
This isn’t to say that splitting them isn’t worth doing, but it won’t do anything to help monopoly problems. The main result would be the death or price increase for smaller services.
U.S. Steel is for sale for $7 billion. One-sixth of Twitter's sale price.
U.S. Steel was once the largest company in the world.
You're talking about practically ancient history. "In 1902, its first full year of operation, U.S. Steel made 67 percent of all the steel produced in the United States. About 100 years later, as of 2001, it produced only 8 percent more than it did in 1902, and its shipments accounted for only about 8 percent of domestic consumption." https://en.wikipedia.org/wiki/U.S._Steel
The federal government did try to break up U.S. Steel... in 1911.
It's hard to guess where Apple or Google will be in 100 years
Um, no? It didn't magically go from 67% to 8% in the year 2001. It had already declined. In fact, it started to decline quickly: "Because of heavy debts taken on at the company's formation—Carnegie insisted on being paid in gold bonds for his stake—and fears of antitrust litigation, U.S. Steel moved cautiously. Competitors often innovated faster, especially Bethlehem Steel, run by Charles Schwab, U.S. Steel's former president. U.S. Steel's share of the expanding market slipped to 50 percent by 1911."
In fact, it never did that. It went from x million pounds of production to 1.08*x million pounds of production. It also went from 67% domestic market share to y% domestic market share.
Gluing a couple sources together it looks like US domestic steel production was worth $90 billion in 2020 and U.S. Steel has a revenue of $21 billion in 2021. That said, this is a volatile market and 2021 had 20-30% higher sales than 2020 and 2022.
If you want to talk specifically about average company time in the Fortune 500, that has been going down
This is all beside the fact that company age itself is meaningless when you have a history full of mergers, acquisitions, and even reverse mergers or takeovers.
End of the day, steel is a capital intense, low margin business dominated by Asian competition.
This tells a different story than the article which focuses on the average age of companies including time not part of the Fortune 500.
It would be interesting to run the same analysis for the Fortune 100 and the fortune 500 to 400 companies
https://www.aei.org/carpe-diem/only-52-us-companies-have-bee...
Twitter has not defaulted so far because elon can just pour money in and cut expenses - which he has been doing since taking over
Companies with first movers advantage build huge moats before industries get regulated, once they do those moats give them de facto primacy in their field.
I would actually point at regulation for most of the modern maladies we suffer, typically property rights, particularly IP, if only because we're oriented towards services now.
They still get hauled in front of Congress, but it doesn't seem to matter much nor affect their business.
Everyone likes to say this, and sure, lobbying is a thing. But I doubt 99 percent of the people saying this can produce evidence of wide-scale bribes and corruption at the Federal level which could justify them saying it as often as they do.
And being on the payroll is played very differently now: consider the Pelosi family investment strategy as it relates to big tech. Bribes are not required to get paid.
The article instead looks at massive capital consolidation as the product of a free market. The scale begets massive synergies (for lack of a better word) across vertical integration and horizontal expansion. This particularly holds true software firms. With those efficiencies, it becomes impossible for new entrants to enter a market even adjacent to a large incumbent.
If the corner shop can go bankrupt but the trillion dollar company receives government help to pay its debts, it is not a free market.
If any tariffs system exists, which inherently favours a niche over the other, it is not a free market.
If once you reach a certain size you unlock ways to avoid paying your workers, skirt around taxes, because there are laws written to allow this, it is not a free market.
If the amount of money you control pays your way into the king's court, and helps sway the ones in power to write laws that favours you, it is not a free market.
> Chaebols are sort of the product of a centrally planned economy. I.e the government backs a "winner" - so Korea can more quickly compete globally at scale.
How are our Western democracies not centrally planned economies? Don't we have a central bank and a single place where all state powers flow from? Of course we don't operate like the CCCP did, but we are no less centrally-planned than they or Korea are.
We never had one a free market, we never had a decentralised economy, and we should be talking about that instead of living in that Eric Andre skit. Our system is set up to destroy any semblance of competition and meritocracy and then we wonder "who killed the small business?"
In the small scale, it has been working beautifully and as intended since its inception.
My corner shop lives in pure, unadultered competition with all other shops in the corner, and the governments favour neither one nor the other. They are not at risk at growing like a cancer and swallowing the entire neighbourhood. As long as they provide good products at reasonable prices, they are allowed to exist. The day they get greedy, people stop giving them money, they go bankrupt and someone else eats their lunch.
The free market creates an equal and opposing force to the human natural drive towards selfishness and greed. But if you put your hands on the mechanism, you risk tipping the scale in favour of one over the other. Blame the hand on the scale, not the market.
The big failures were fundamentally flawed in some way, and weren’t <my economic system of choice>. Here’s a small scale <commune|kibbutz|corner store> model that shows it could work if only given a chance, just need to scale it up.