Consumer Web is Binary
Below I’ve listed the #1 and #2 companies in a sampling of consumer web markets.
Facebook
No #2 – Myspace effectively died. Google+ has been laughable.
Tumblr
No #2 – Posterous acquired & shut down (can count WordPress though blogging / microblogging had different origins and compete indirectly).
Snapchat
No #2 – FB Poke failed
Google
Bing (burning hundreds of millions a year, bought Yahoo audience to be #2)
Instagram
No #2
Twitter
No #2
Vine
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)
Foursquare
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)
Uber
No #2, though in theory Lyft and Sidecar are pursuing same market in different way (rideshare vs dedicated drivers)
Spotify
Rdio is a distant #2
YouTube
No #2
Amazon
No#2, even the sum of the long tail is almost insignificant, which is crazy.
Wikipedia
No #2
LinkedIn
No #2
Ebay
No #2
Pinterest
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.
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.
great comment
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.
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.
Amazon did $60B in revenue in 2012, Wal-mart expects to do $10B in 2013: http://allthingsd.com/20130607/walmart-ceo-e-commerce-sales-to-hit-10-billion-this-year/. There are a bunch of other traditional retailers above $3B if you look at IR 500 data from 2011 and project forward to today. But, upon further reflection, the gap is humongous even between #1 and #2, so your point holds.
Isn’t Apple on track to sell $20B via its online channel?
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?
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
What about messaging? Seems like there’s a 2 and 3, no?
Definitely. Messaging is completely fragmented globally.
Interesting
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)
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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For Uber i would definitely say that Hailo is it’s #2.
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?