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'Winner takes it all' - The 'Malaise' of the global web based markets for entrepreneurs?

October 23, 2015

Are there lots of courageous entrepreneurs starting to enter a market only to be the first loser? Will there be a future with a global the winner takes it all attitude? Lots of stories I was stumbling upon the last weeks are going in that direction and I am not sure if this is what entrepreneurs will like, but read my thoughts yourself.

 

To start with I should mention that my daily business is to support companies (global SME’s and start-ups) to use the possibilities of the Internet, to adapt their business model and to scale it globally. I founded several companies (but no unicorn, yet) and have lots of new ideas to disrupt markets.

 

Having said this, I am slightly worried about the future of the Internet from an entrepreneurs view and I am not talking solely about the digital entrepreneurs but about all people setting up their own business, doesn’t matter if this is a restaurant, a hotel or a new disruptive venture.

 

I am reading a lot and I recently read an article in the latest issue of the German "Manager Magazine" about delivery services and their daily fight for global market leadership: Huge sums of money – hundreds of millions of Euros – have been invested, no profits so far, decreasing margins due to growing competition, but the public listing only small steps ahead.

Some pages before I read an article about the Lufthansa's way to become a no frills carrier and get away with that from low margins by focusing on the target group ‘everybody’ able to fly. All of this in order to compete with the Ryanair and EasyJets’ of this world and with that try to mix best quality and lowest cost, which is not possible as everybody of us learned in school earlier.

Some days ago then there was the amazon announcement that Apple and Google streaming products will be delisted from all amazon stores as they are a competition to the amazon streaming service. 

 

What the hell is going on here?

 

I am asking myself what is wrong with these markets and what is the Internet's future from an entrepreneurial perspective? Everything at the lowest cost possible with lowest wages, highest possible competition, going on until only one global company ‎exists that can dictate the prices? Will entrepreneurs have to decide between giving up or working under immense pressure (mostly about cost cutting and making processes more efficient) on a global scale with Amazon-like margins?

When you look at new business models like Uber, there is of course ONE big winner, Uber (or it might be Didi Kuaidi the Chinese counterpart, too). Yes, there are lots of small winners: many taxi drivers who win more clients or could even start their business. But at what price? The risk of failing is nearly 100% at the taxi driver, the portal company – in this case Uber – has not that much to lose. Less bookings, bad luck but they have their 30% revenue share. Even when the driver is working at the lowest possible fare, they will get it.

Same with companies like Apple: Billions cash at hand, no idea what to do with it and on the other side of the ocean people in China producing it for lowest possible prices. And with the apps too: 30% revenue share of everything you sell? Even if you sell millions because you did a great job? There was a time when you get discounts then.

There was a recent presentation (Tech and Media Outlook 2016 at WSJD Live Conference on October 20th, 2015) of Activate, a US consulting company, that said the TOP 20 app developer are making 48% (of $15B at Apple) to 64% (of $8B at Android) of the total app revenues in stores. More than 300.000 (!) app developer are sharing the remaining revenue that leads to <$8k revenue per year / developer at Android and <$28k revenue per year at Apple.

 

 

 

To be honest, that’s not something you're looking forward too, do you?

The winner takes it all might be a good song, but if there is no competition at the end, the fun goes down for the majority of entrepreneurs. And the public will lose to as there will be less choice in the future.

 

Things that have been spinning round in my head the last weeks:

  • Why will a delivery service platform earn lots of money (at least they promise it) with a platform but the delivery services behind are paying minimum wages to keep their head above the water?

  • Why does Lufthansa try to compete with the cheap airlines and why didn’t they think about what will be the next step in flying and try to do something differently? When everybody goes to low cost, then there will be a huge opportunity to start something different – the model a new airline called ‘Poppi’ sounds exactly fitting to Lufthansa’s quality thing: All middle-seats are free and there is no luggage in the cabin (which reduces time for boarding by 71%).

  • Why is Amazon as a global player with minimum margins who destroys all competition allowed to go on blocking competition from its market? And why do they rely on parcel services where most people are self-employed (although most would love to have a fixed job). Ecommerce margins are trending towards an all-time low, see this recent article (https://www.ibusiness.de/members/aktuell/db/726392veg.html).

 

Are we living in a world ‎where more and more sectors in the industry are entering the doom loop? A zone where there is just one way to go: Prices down by constantly cutting costs?

 

The questions I had in my mind while looking for new markets and opportunities to invest in or build up myself were very different, but they all lead to the same conclusion: There must be a new kind of market or economy at the end of this.

 

Welcome to the controllers' world.

 

Right now nearly everybody is focused on cutting costs in order to deliver a product or service cheaper to the customer. When a company enters the doom loop, which constantly happens in the travel industry with hotels not relying on their quality and a clear focus on their target group, but by selling their rooms only via booking portals like booking.com, and with that decreasing their margins and never winning any clients except by price. Tough story, but then the end is near if you're not Ryanair with perfect streamlined processes. If one hotel starts with it, all others will have a tough time but at the end the ones who will not follow but focus on their strength will win this battle. 

 

All of this leads to separate the processes from the manpower which means that ‘stupid’ labor will be the biggest part of the workforce in future and skilled work will be done by international giants.

 

I am not sure where this will end and I cannot predict it but I do think that there is something wrong in this global system right now which needs to change in order not to separate the world into a very small big player part and a very large part with entrepreneurs just keeping slightly above the ground.

 

For myself I can say that there is a huge chance to develop new kinds of highly attractive business models – which are not social entrepreneurs, but somewhere in between where entrepreneurs and customers will have a decent choice but also a positive outcome for both sides. This might take a while until the online world will change into that direction but the time is right to even ‘disrupt’ the current business models to change the worst part of the Internet.

 

Long live the entrepreneur :-).

 

 

Comments on these thoughts highly appreciated!

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