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Comment by broken_clock | Hacker News Reader

This is very similar to Ben Thompson's The End of the Beginning article: https://stratechery.com/2020/the-end-of-the-beginning/

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?).

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> Think Walmart vs Amazon. Online shopping is actually a completely different product.

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.

1. https://fourweekmba.com/amazon-vs-walmart/

The chart shows that Walmart revenue has grown 18% in 7 years, well below US GDP growth. Maybe they haven't dented revenue, but it's entirely possible they've dented revenue growth.

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.

That’s also lower than inflation (napkin math) over the same period. Unless you’re already adjusting for it.

Keeping prices low is a great thing. I wish Walmart and Amazon every success in that endeavor.

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.

> Keeping prices low is a great thing.

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)

> ...this also forces things like small farmers and retailers being unprofitable...

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.

>>Nobody is "forced" to be unprofitable. If a business is unprofitable it can shut down.

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’ve said it before and I’ll say it again: Progressively increasing asset taxes are the way. Make it more expensive to control a lot of resources to counteract the natural monopoly effect that comes from controlling large amounts of resources.

Free markets also should allow winners and losers. Walmart wasn’t always big. It was a winner though.

You can have winners and losers and also quantify the non-capital externalities in order to account for them.

Isn't zero profit the point of a fully efficient economic model? Profits are excess money after costs by definition so in such a system you'd want profits to tend to zero.

If the prices are low because the quality of products is low, the treatment of workers is shit and any other negative environmental externalities are ignored, then low prices are actually a bad thing leading to artificially inflated demand.

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.

> prices are low because the quality of products is low

I don't see how this is a bad thing. If people want to buy cheap low quality products they should be able to.

Define quality more accurately than the poster you're replying to. Their definition of quality included goods produced while accounting for externalities, and non-abusive/exploitative workforce treatment.

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.

I’ve had this discussion before but essentially it’s that nobody (very few) really want to buy low quality products. They do if that is the only thing they can afford because of other shortcomings of society.

Edit: Found the previous discussion https://news.ycombinator.com/item?id=36630612

I'm not sure I understand. Resources are inherently limited. It would be nice if everyone could have whatever they want, but that's not reality. Until then people should be allowed to sacrifice quality in some of the things they consume to raise the quality of others.

Yes of course. I was probably not very clear about it but I’m more talking about very low quality, almost single use items.

Thats quite a naive view. What do you think happens after they kill all the competitors? Do you think they keep their prices low?

> Keeping prices low is a great thing. I wish Walmart and Amazon every success in that endeavor.

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.

> It has increased poverty

Talk is cheap. Show me the maths.

I think the OP was saying they abuse their monopsony power, that being a monopoly puts them in a monopsony position which they then abuse to maintain their monopoly.

The traditional endpoint-consumer-facing side of the market is just one part of the transaction web.

> Keeping prices low is a great thing

In absolute terms, no, it isn't! Think "race to the bottom".

Coupled with the proper checks, low prices can be great.

I disagree that Walmart abuses their market power.

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.

Personally I think it's both - they execute incredibly well given their scale AND they abuse their market power.

> Personally I think it's both - they execute incredibly well given their scale AND they abuse their market power.

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.

Walmart also has a hedge in that IIRC its initial expansion was in rural areas neglected by most department store/big box chains.

If anything, the dollar stores represent more of a threat to Walmart.

The dollar stores around here pose no threat, except maybe in the area of helium balloons.

The jump to being a five dollar store that the other one did is doomed to failure.

Dollar stores are certainly stealing a lot of Walmarts lunch in rural illinois and Iowa.

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.

Yeah, and they're one of the reasons the poor stay poor. Dollar stores are a terrible value.

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.

Sometimes it’s not about understanding.

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.)

You're missing the entire point of my comment.

Dollar General is kicking WalMart in the teeth pretty good.

Maybe somewhere but around here I was generally disappointed with the prices at the DG. I could see how more locations could help.

Walmart is also flying up fast behind Amazon in everything but running a cloud service, and they’ve surged past on a number of things for me.

I’ll let Prime expire and see if the ghost of Sam Walton can get me to go for WalmartPrime™.

I live in fly over country.

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.

Walmart is also honestly a bit better in provenance of items, too - and returns are simple.

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.

A fly over country? Like, Greenland? And you have Walmart? I'm really curious what country are you from.

> Flyover country and flyover states are American phrases describing the parts of the contiguous United States between the East and the West Coasts. The origins of the phrases and the attitudes of their supposed users are a source of debate in American culture; the terms are often regarded as pejoratives, but are sometimes "reclaimed" and used defensively.

https://en.wikipedia.org/wiki/Flyover_country

I've been reclaiming the phrase to mean the coastal states. Living in TX, California and New York are what I fly over to get to actually good places in Asia and Europe.

As the sibling comment defined it I will point out the term was "flyover country" not "a flyover country"

You can't compare Walmart to Amazon, Walmart is a northamerican thing, Amazon is global. Walmart has zero influence in the prices of the tomatoes grown in Europe.

Their international scale is similar, though I'm sure not in exactly the same places. Amazon had $118 billion in non-US revenue in the most recent fiscal year while Walmart had $101 billion.

If you limit it to only retail, Walmart probably comes out ahead.

> Amazon is global.

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.

Walmart and Sam’s club China are reasonably significant. Not just a North American thing.

Aldi has better prices on meat and produce, I just wish they would start building more of them

> Aldi has better prices

For the same quality? With the same workers' rights? With at least ea liveable profit for their providers?

Is there a different product that can not be cloned? Meta produced threads in what, a month? How long would it take your start up to get the users they did by turning it on?

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.

> Meta produced threads in what, a month?

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"

Meta I've worked at and there's no large company that will finish work faster but they will finish it multiple times.

Isn't threads already dead and gone?

I’m not sure it matters much. The point is that they identified a potential area for a competitor to grow in social media and just utterly crushed the space. And now that it turns out maybe there isn’t much of a market it doesn’t even really matter to them, they can easily absorb that loss and move on.

did they crush it though?

You can beat them on customer experience but I have yet to see a company successfully scale it in the tech space (aside from possibly Apple). Everyone hates the incumbent, loves the personalized support, lack of ads, and breadth of features of the challenger, then enshitification happens as the challenger starts scaling.

I assume you didn't mean their brick and mortar stores, because some of the customer service I've experienced there has been atrocious. Why should I have to make an appointment just to buy one of their overpriced laptops? That's not how stores work.

Apple’s stores are too successful - they are beyond capacity.

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.

While I agree the stores are annoying (they seem like annoying jewelry shops filled with poser know-nothing cool kids) but they do have web accessible local inventory. Why do you make an appointment for that? I just buy anything I need online and pick up at the store when the order is ready. It's not like they customize anything. It's basically a glorified shoe store. They either have what you want on the shelf or they don't.

I've never had to make an appointment to walk in and buy something, although they do sometimes ask for a pickup window if you order ahead online. Even in the height of the pandemic I don't think they limited shopping to appointment only.

iPhone share is growing because it is the best phone, and has been for quite some time.

Some aspects of androids are better computers, but certain the phone and communication part of them is far far behind.

That's weird. Is there something about the telephony system in the iPhone that's better? First time I've ever seen anyone praise that. People generally care about the curated walled garden experience.

Yes, imessage and facetime are vastly superior to whatever the android alternatives are.

Those aren't telephony services though. They're Apple's WhatsApp/Signal equivalents.

> because it is the best phone

* least bad. Out of two options.

Which, technically, makes it the best.

Some people must think that it's impossible to reach iphone levels of stability, design, etc. but the truth is that google is simply incompetent in the same way microsoft was with windows phone.

Incompetent doesn't quite do it justice. Google doesn't even sell their phones world wide. It's depressing. They're the only phones with hardware security rivaling that of iPhones too. I don't know which's worse: having to buy from Google to use GrapheneOS or the realization that all the other manufacturers are even further behind.

With remote attestation there'll be no point in running android anyway. Might as well get an iPhone.

Personally I'm really hoping someone tries another gaming phone with buttons built in. There's really no always-with-you gaming solution that doesn't come with massive compromises.

God I miss the taco phone.

https://sidetalking.com/

I’ve always thought the key will be some buttons on the back.

Prepare to be sad after you look up the failed Flitchio, which was a phone case with shoulder buttons and slide pads on the back.

Oh I know it would be hard to sell - maybe it would work if Nintendo sold it as a gaming device that could make calls or something.

Right. Amazon couldn’t have beaten Walmart at its own game, so it played a different game and won that instead.

The cloud game is what Amazon has their retail arm is massive but not that profitable

Amazon retail is profitable. It's just that all the profit is from selling ads so some people don't realize it.

Actually it played the same game (volume with ultra low margins) but to a different set of users

It played the “don’t have to collect sales tax in most states” game until the Supreme Court changed the rules.

The iPhone is perhaps the worst example you could have picked. Its many competitors are more interested in pushing lock-screen ads than offering a quality phone.

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