Why do Stores & Platforms try to create infinite competition and commoditize suppliers & vendors?

One of the common characteristics of modern technology companies (those started in the 1990s and 2000s and 2010s) is that they try to create Platforms and Ecosystems which have Infinite Competition

  1. You can see how search engine companies create infinite competition between newspapers, websites, and blogs for search traffic
  2. You can see how advertising platforms create infinite competition between advertisers for ad clicks
  3. You can see how ecommerce stores create infinite competition between creators and companies for sales

This is a very common trend

Let’s look at why these companies focus on creating such Infinite Competition Platforms

Top 10 Reasons Stores try to create Infinite Competition

  1. All the benefit goes to the Store if there is Infinite Competition
    1. There is an old Romanian saying – When two people fight, a third wins
    2. Stores want to make everyone fight each other, and get all the benefit for themselves
    3. Infinite Competition means creators and suppliers offer more and more for less, and the store attracts more and more customers
    4. Infinite Competition means creators and suppliers pay more and more to the store for advertising, and the store makes a larger cut of what end customers pay
    5. Infinite Competition means end customers start thinking the store is the key creator of value (more on this later)
  2. To divide and conquer
    1. By creating Infinite Competition, the store/platform ensures that all the suppliers and creators stay small and divided
  3. To weaken the chances of suppliers becoming self reliant
    1. If the Store were to let ‘the best creators’ be wildly successful, as would happen in a truly free market, those ‘best creators’ would become strong brands and be able to become self reliant
    2. You can see this in video game streaming where YouTube and Microsoft are paying the best streamers $10 million to $30 million to leave Twitch (owned by Amazon) and come to their platforms
    3. Stores and Platforms are noticing this and thinking – much better to keep everyone small, so people don’t become big and start commanding huge amounts for their loyalty to our store/platform
  4. To mask the truth that they are nothing without suppliers
    1. One of the hidden realities of platforms is that without creators and suppliers they are nothing
    2. If you have nothing except ‘the platform’, then you have a very strong motivation to prevent creators and companies from becoming self reliant
    3. It is imperative at all times, to create and maintain the false perception that ‘creators are nothing with out the store’
      1. Because the exact opposite is true
  5. To take a larger share of the cut
    1. If a platform can keep creators and companies small, then they can double dip
    2. They take one 10% to 30% cut as their ‘platform fee’
    3. Then they sell ‘advertising space’ on their platform, and get another 10% to 30% cut
  6. To Keep People dependent on the Platform and Keep them Stuck on the Platform
    1. If the Platform/Store were to not keep suppliers and creators small, they could just walk away once they become big
    2. A great example of this is games, where games like Fortnite no longer use Google’s Android Play Store. They just distribute the game themselves and avoid Google’s 30% platform tax
  7. To create the misconception that value is being provided by the platform and not by the creators
    1. Perhaps one of the biggest reasons for creating Infinite Competition is to make end clients think the value is provided by the Platform
    2. If a subscription service had 10 mega brands, and then thousands of smaller brands, end clients would think it is the 10 mega brands that provide value
    3. By keeping everyone small, and not letting mega brands emerge, the subscription service can make end clients think that the Platform provides all the value
  8. To Marginalize
    1. Ever been in a relationship where someone treats you badly as a sort of reverse psychology – so you start thinking they must be special to take you for granted
    2. Platforms are like that. Without creators and suppliers and companies they are nothing
    3. So they insist on Infinite Competition and marginalizing everyone, so that these companies don’t realize that without them the platform is nothing
    4. A good example are Food Delivery Platform companies. All of them are loss making. A few of them were trying to get restaurants to give them a 40% cut
      1. It would have worked. Except the restaurants realized what was going on, banded together, and boycotted the platforms that were asking for a 40% cut
      2. Within weeks these Food Delivery Platforms ended their extortionary demands of a 40% cut
    5. Platforms are constantly in fear of an alternative emerging and everyone leaving. Therefore they must marginalize to create the perception that the Platform does not need anyone
      1. Smaller the companies and creators on the platforms, the less the platforms have to worry about them seeing the truth that the Platform needs them
  9. To prevent the rise of competing platforms
    1. One Platform keeps everyone small and weak. When a competitor emerges, there is no easy path for that competitor to build its platform
    2. Another platform allows some companies and creators to become big brands. When a competitor emerges, that competitor can bribe the big brands and companies, and take away a significant portion of the platform
    3. Most Platforms will do relentless divide and conquer because large companies and large brands are a risk to the platform. They can leave anytime, and they will take lots of end clients with them
  10. To make sure no creator or supplier or company can become large enough to become independent of the platform
    1. A small creator is giving a 30% cut to the Platform as ‘Platform Tax’
    2. A small creator is giving a further 20% cut to the Platform as ‘Marketing Fees’
    3. A large creator can decide that it is not worth it to give 50% to a platform for basically nothing except providing a platform
    4. A small creator can never walk away
    5. A large creator can walk away anytime
  11. Because on the Internet no one knows you’re a dog
    1. In the real world, if you systematically screw over partner after partner, soon no one will work with you
    2. Online, you can be a large platform that screws over every small partner you have ever had
      1. However, they will most probably never talk with each other
      2. Some will not understand what is going on
      3. Some will understand they got screwed, but not want to make a big noise about it, out of fear of repercussions
    3. So, online a company can keep screwing over partners (especially smaller ones), and it can be decades before people realize that this company is systematically screwing over everyone it works with
  12. It’s a Model proven to succeed
    1. In the 1980s we had companies like Apple, Microsoft, Oracle. These companies created platforms and products that were win-win
    2. If you invested into this platform, and did well, you could continue to do well
    3. This led to the emergence of lots of billion dollar companies, multi billion dollar companies, and even 100 billion+ companies
    4. In the 1980s and 1990s we also had the emergence of the Internet. The Internet was another platform where if you did well, you could continue to do well
    5. However, since the end of the 1990s, roughly around the time of the Tech Boom and Bust, a new model emerged
    6. It was a model where certain large tech companies built platforms and screwed over their partners one by one
    7. However, by the time people realized what was going on, those platforms were already huge and could lobby/bribe their way out of facing any consequences
    8. It was a new model of building a Platform, doing Divide and Conquer, and profiting while your partners died
    9. It works very well because the Platform steals the value everyone is contributing
    10. It works very well because individual creators and companies only look at the ‘winners’ on the Platform, and always assume they will be the winners
  13. Platforms have lots of other benefits, and this effect (Infinite Competition) is often a side benefit
    1. One point worth mentioning is that Platforms have lots of other benefits
    2. Infinite Competition was more of a side benefit
    3. It became a much bigger benefit when Platforms realized they could just kill the big winners, and keep a near constant state of ‘infinite competition’
  14. It is impossible to pick the winners, so you have to let it almost everyone
    1. In some ways, Platforms have to encourage Infinite Competition
    2. No one can predict the future. You never know who will succeed
    3. This naturally means the Platform has to let in almost everyone. Because they don’t want to keep out someone who finds a big new business opportunity
    4. So platforms let in almost everyone
    5. This large influx adds to the Infinite Competition aspect

So, what is the solution?

Well, the best solution is to not compete where there is Infinite Competition

If you are forced to compete in such an environment, please read our post on How to Compete when there is Infinite Competition

Also take note of two types of ecosystems with Infinite Competition that we mention. There is one type you should never enter – one where the Platform goes out of its way to kill all the ‘winners’ and ensure that no one can ever escape the Red Ocean of Death of Infinite Competition

Please also read our post on Blue Ocean Strategy for Authors


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