Consumer Web is Binary

Posted on: July 29, 2013
Posted in Strategy

Below I’ve listed the #1 and #2 companies in a sampling of consumer web markets.

No #2 – Myspace effectively died. Google+ has been laughable.

No #2 – Posterous acquired & shut down (can count WordPress though blogging / microblogging had different origins and compete indirectly).

No #2 – FB Poke failed

Bing (burning hundreds of millions a year, bought Yahoo audience to be #2)

No #2

No #2

No #2 though video will surely play a role for Instagram and it’s early… But there’s no one else in the running (Viddy, Socialcam, etc)

No independent #2 left out of dozens of copycats (however FB’s succeeding in local and Yelp has shifted from web to mobile during time 4sq has grown up)

No #2, though in theory Lyft and Sidecar are pursuing same market in different way (rideshare vs dedicated drivers)

Rdio is a distant #2

No #2

No#2, even the sum of the long tail is almost insignificant, which is crazy.

No #2

No #2

No #2

No #2

All these demonstrate a very provocative and clear drop off between #1 and everybody else – consumer web really does hold as winner-take-all markets. In each of these markets there were dozens of well-funded (sometimes hundreds) competitors.

The main rationale is undoubtedly network effects and demand-side economies of scale – a connected user benefits more when others are on the service.

Mobile is certainly the biggest inflection point for new upstarts to dethrone the #’1’s (and create new markets) and we are seeing it happen in cases. But interestingly, these mobile-first markets also seem to be growing into winner-take-all.

  • Joel Andren

    Aren’t these all competing against each other? They shouldn’t be worried so much about a #2 as they should something new coming along. Agree though that in new markets it is winner-take-all.

    • aweissman

      great comment

  • mdudas

    The Amazon example isn’t accurate, as established retailers like Walmart, Target and many others take significant collective share…and their web+ mobile offerings are definitely consumer internet at this point.

    • steve cheney

      Amazon is a funny one. They are so dominant in e-tail with and have done very well bringing the long tail on to their marketplace product, I think of them winning vs the “e-commerce first” folks. But yeah Target and Walmart are super progressive and have done well transitioning. In e-comm only (if you exclude b&m) any idea what the share breakdown is?

      Keep in mind – important point – the capital markets would suggest they think differently than you lay out, Amazon is worth more than Target + Cosco combined (and almost half of Walmart) and they are obviously valuing growth based on online going forward.

    • Greg Lomow

      Isn’t Apple on track to sell $20B via its online channel?

  • aweissman

    One theory (which we subscribe to generally) is that network effects in the Internet era lead to winner take all, or most. I am wondering if, or how, that still holds going forward. For example, does mobile fragmentation weaken this?

    • steve cheney

      Thanks for reading Andy. Good question.

      I think mobile fragmentation could definitely impact the way a network takes hold. Instagram won the mobile photo sharing market when iOS-only with just 20M users before they supported Android (even though it was Android which quickly accelerated them to 80M).

      Consider iOS only services like vertical marketplaces that aren’t value driven. e.g. say for a price insensitive convenience driven marketplace, most users will initially be affluent (iPhone), so the company may purposely skip android. If a mobile service runs away on one platform, then it could dominate before affected by fragmentation?

      Many others (games? messaging?) will certainly be all flavors of android + iOS at launch – may be some correlation with why these aren’t winner take all on mobile.

      Just riffing off your question… Interesting to think about it

  • Ryan Fujiu

    What about messaging? Seems like there’s a 2 and 3, no?

    • steve cheney

      Definitely. Messaging is completely fragmented globally.

  • James Ferguson @kWIQly

    I wonder how this plays out in B2B enterprise SaaS in those cases where two-sided network effects will be significant.

    A case in point is the niche for virtual energy surveys (read smart meter data and diagnose / influence performance) – there are few players, it is a highly differentiated niche in a massive market, that leverages up-selling (eg commodities on the back of advisory services – competitive utilities are headed this way) and cross-selling into eg building refurbishments.

    I suppose there will be a few oligopolies that mature out of this – but will they be the utility companies (who supply but don’t know energy use cases), construction who build, FM or controls companies (Honeywell Siemens etc).
    Or will some super-hybrid companies emerge (eg controls companies that offers energy buying support, or utilities that provide building service support)

  • David Aronchick

    While correct, I’d argue MOST categories are binary.

    Taco Bell >>> Del Taco
    Walmart >>> Target

    And so on. It may not be quite as extreme as in Tech, but I believe most business trends this way.

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  • Vlad Ciurca

    For Uber i would definitely say that Hailo is it’s #2.

  • Ryan Anderson

    While the binary nature of these verticals may be true, it doesn’t mean that the company currently #1 gets to remain there. Myspace -> Facebook, Yahoo -> Google, and Typepad -> WordPress are just a few examples of the clear leader being passed.

    So yes, it may be winner-take-all but the winners can be beaten.

    Also, any reason you didn’t include Pandora in the Spotify/Rdio category?

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