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This is a little tangental, but tangental to a couple of the themes here... One tangent is that I'm totally dissapointed with the dominant "content aggregators

This is a little tangental, but tangental to a couple of the themes here... One tangent is that I'm totally dissapointed with the dominant "content aggregators" like kindle, netflix, spotify, apple and such. Amazon wrapped up the ebook market quick. But, even though it's a revolutionary change in medium, very little changed. The book publishing industry was ripe for change. Physical publishing gradually got less expensive and less risky. From physical typesetting to short run modern printing. ebooks bring that capital cost down to $0. In response, publishers maintained their "venture capital" status with advances (money upfront to authors) and (supposedly) "marketing," the impression that a publisher can make a book sell. The point on publishers' marketing importance is dubious, especially in the context of amazon & ebooks. Advances, editing and the remaining jobs publishers do... The value/cost does not add up to 80-90% of the revenue. Typical royalty rates (5%-20%) are absurd. Amazon could have disrupted this, easily. It would have completeley changed the industry, and made writing a viable living for many more people, producing many more books. Also, mediums. Magazines famously spawned whole new formats and genres. So did things like paperbacks, pamphlets and other medium changes. Serials and shorts stories. Comic books and gossip collumns. The internet gave us blogs, tweets, infographics and PG essays. Ebooks gave us digital versions of paper books. The impact has been minimal. It is as if amazon did their very best to revolutionize books, but change as little as possible. Spotify did something similar, maintaining and reinforcing the norms of artist-label dynamics, even though they are completely unsuited to the modern industry. My second tanget is a point on the cost that does scale linearly: customer acquisition costs. This generally means FB & Google. They started as free discovery (customer acquisition from the customers' perspective) and became paid customer acquisition tools. Today, they are mostly paid customer acquisition tools. This means (a) that these guys charge a toll on certain sectors and (b) that ability to pay this toll is a major factor of success. It sucks to be in a market with head-t-head competition. These markets are efficient (especially on adwords) and the price of acuiring a customer tends to stabilze near marginal revenue per customer. IE, whatever your margin is on customer, it goes mostly to google. If you earn less per customer (per impression, more accurately) than the competition, these channels are closed to you. This results in a uniformity of business models. Examples are many, but think of all the subscription food delivery, maid services, laundry, etc. If you are offering one-off housecleaning and your competition is selling subscriptions, they will probably outbid you on adwords. You will need to change to a subscription model to stay on adwords. Free discovery channels (eg, HN) have (had?) a totally different dynamic then the paid ones. I think this is an important thing to realize, if you're starting a something these days.

cm2012 9y ago
This is a very insightful comment, specifically the second tangent.
- dalbasal 9y ago
  Cheers cm. This has actually been fairly clear (if you have exposure to ad buying) since early days, but I've heard relativley little talk of it. They put a lot of effort into making ad "ROI"easier for advertisers to track at a granual level. Micro1001 will tell you that firms spend upt to that point where marginal spend yields $0 marginal profit. In most markets this is pretty academic. Spending isn't that granual and return isn't that transparent. In the simple economic model, the assumption is that marginal profit on the 2nd to last dollar spent is more than $0, and the dollar before that is even better. On adwords, it's typically more "efficient." Initially adwords leaned into this, with their "bid-for-ranking" approach. Pay more per click, get more clicks. You could bid to optimize for profit, profitability or volume, as you wished. An 8th place ad might cost a fraction of a 2nd ranked one. Then, they dropped the RHS ads and focused on getting more clicks to the highest paying advertisers. This has brought adwords close to an on/off decision. There is no more "bid-for-volume" dynamic. The highest bidder takes the whole pie. Th upshot of all this is that average roi and marginal roi are the same, approaching $0 in competitive markets. There are a lot of markets where this is completely played out. That is, Google get a cut (anywhere from 10% to 50%) equivalent to the average margin that advertisers earn on whatever they're selling. The advertiser is whoever has the highest margin. Insurance, for example.
  - lmm 9y ago
    > There are a lot of markets where this is completely played out. That is, Google get a cut (anywhere from 10% to 50%) equivalent to the average margin that advertisers earn on whatever they're selling. The advertiser is whoever has the highest margin. Insurance, for example. Sounds like actual insurance has been commoditised, whereas Google is still making monopoly rents on advertising. There's some kind of analogue of Amdahl's law: the cost reduction from commoditising part of the work of producing a product is smaller than you would think, because the cost will increasingly come to be dominated by the parts that can't be commoditised.

cm2012 9y ago

This is a very insightful comment, specifically the second tangent.

dalbasal 9y ago
Cheers cm. This has actually been fairly clear (if you have exposure to ad buying) since early days, but I've heard relativley little talk of it. They put a lot of effort into making ad "ROI"easier for advertisers to track at a granual level. Micro1001 will tell you that firms spend upt to that point where marginal spend yields $0 marginal profit. In most markets this is pretty academic. Spending isn't that granual and return isn't that transparent. In the simple economic model, the assumption is that marginal profit on the 2nd to last dollar spent is more than $0, and the dollar before that is even better. On adwords, it's typically more "efficient." Initially adwords leaned into this, with their "bid-for-ranking" approach. Pay more per click, get more clicks. You could bid to optimize for profit, profitability or volume, as you wished. An 8th place ad might cost a fraction of a 2nd ranked one. Then, they dropped the RHS ads and focused on getting more clicks to the highest paying advertisers. This has brought adwords close to an on/off decision. There is no more "bid-for-volume" dynamic. The highest bidder takes the whole pie. Th upshot of all this is that average roi and marginal roi are the same, approaching $0 in competitive markets. There are a lot of markets where this is completely played out. That is, Google get a cut (anywhere from 10% to 50%) equivalent to the average margin that advertisers earn on whatever they're selling. The advertiser is whoever has the highest margin. Insurance, for example.
- lmm 9y ago
  > There are a lot of markets where this is completely played out. That is, Google get a cut (anywhere from 10% to 50%) equivalent to the average margin that advertisers earn on whatever they're selling. The advertiser is whoever has the highest margin. Insurance, for example. Sounds like actual insurance has been commoditised, whereas Google is still making monopoly rents on advertising. There's some kind of analogue of Amdahl's law: the cost reduction from commoditising part of the work of producing a product is smaller than you would think, because the cost will increasingly come to be dominated by the parts that can't be commoditised.