Tag: competition

Internet speed and monopoly power

My mom used to have a 16 MBPS (mega bytes per second) internet connection a few years ago in India. However, in the past 3-4 years, there’s been a slew of new competitors in the broadband market and her internet speed right now is 75 MBPS. Thanks to the competition, the costs have also gone down every year.

We had a 150 MBPS connection via Comcast at home last year. Comcast recently notified me that the 150 MBPS was actually a “special offer.” And, if I still wanted it, I’d have to pay $15 per month extra. I could keep my current rate – but they’d lower our speed to 60 MBPS.

I called up our apartment’s front office to check what my options were if I didn’t choose Comcast. She explained to me that there were none.

So, I called Comcast back and said I’d take the downgrade.

Now, 60 MBPS is more than sufficient for normal internet use. In addition, this is definitely a first world problem. However, it illustrates the cost of a regulation driven monopoly. When your users have nowhere else to go to, you can do the bare minimum and get away with it.

It doesn’t mean you should. But, the incentives to drive profits and “shareholder value” at the expense of customers with no alternatives is very powerful indeed.

Geography and success

Ever since Jared Diamond wrote “Guns, Germs and Steel,” multiple historians have come out with books explaining why attributing historical dominance to such factors isn’t right. A better theory, they explain, is to study the link between geography and success. Peter Zheihan, in his book, “The Accidental Superpower,” crystallizes this view beautifully. The success of a society is inextricably linked to its geography. More specifically, there are 3 factors that typically lead to dominance –

1. Ease of internal navigability – In past centuries, this meant being connected internally by waterways that helped with administration, trade and a sense of unity. This was a big reason for the dominance of the Egyptian civilization.

2. A location that isn’t easily attacked – Great Britain enjoyed this geographical advantage during the rise of their empire. And, the Egyptians enjoyed the security of the desert that surrounded them.

3. A land conducive to agriculture and industrialization – This would ideally involve arable land, a large enough population and convenient location of land to internal navigation systems.

geography and success, superpower, self, competition, luck

Even one of these factors can give rise to a superpower if it is accompanied by mastery of technological power. For instance, one of the crucial technologies that tilted the balance of superpowers was deep water navigation. The Spanish and Portuguese mastered travel by sea. But, once England learnt this, they became a superpower. Germany’s dominance was due to land that was conducive to industrialization. All these powers did multiple things right (and wrong) once they became dominant – for instance, Germany invested heavily in universities and research. But, the cause of their dominance was geography.

America’s uniqueness lies in the fact that it actually has all of these 3 factors in spades – most navigable rivers, an East coast that is practically a river due to sheltered “barrier islands,” a place that is practically impossible to attack, largest amounts of arable land on the planet, a large population and arable land that is, at most, 150 miles away from water for transport. All of these combined to give the US an incredible advantage in the past 200 years.

As you can tell, it is a fascinating book. I could go on explaining what I’m learning and reading but I thought I’d bring this back to ourselves. As I understand the incredible impact of geography on success, I also realize that it is likely to be very similar when considering individual success. There are 3 takeaways here –

1. When studying success, we rarely talk about geography. But, being born in Hollywood and the bay area respective likely played a big role in John Lasseter becoming John Lasseter and Steve Jobs becoming Steve Jobs.

2. Never compare paths. No one was was born with the exact same circumstances as you. In a sense, every person’s geography is different. And, if you’ve moved away from your home land, it is likely to be very different. Comparisons are not productive because you don’t understand the benefits of their geography or they, yours. The only thing that matters about your path is that you did the best you could to achieve the best possible process and outcomes. The rest is gravy.

3. Our own geography is completely arbitrary. Instead of being born into our families, we could have been born into a slum in India or Africa with very few means to make our way up. It is remarkable that you and I were born into circumstances that allow us to read, write and take food, shelter, and the like for granted. It is so important that we maintain perspective, stay humble and be happy.

And, lest we forget, it is also so important that we make our geographical advantage count by being the best we can be.

The nature of competition

Competition is a funny beast. We all engage with it at nearly every stage of our lives – as kids in school, as employees in the workplace, as companies in the market place, and so on.

There are lots of theories around what it really takes to be competitive. I think the challenge with competition comes down to one core idea – what helps you compete in the short run is not what’s going to help in the long run.

And, understanding this idea is precisely what innovators and creators get right. They abhor the idea of playing in the rat race. Instead, they focus on creating the next thing and starting with a blank slate. It doesn’t always work. But, when it does, it is pretty magical.

This has a couple of interesting implications in our own lives –
1. It is okay to compete for something in the short term. But, pouring all your energy and resources into a short term competition is counter productive. You might win the proverbial battle but will lose the war.

2. That said, if you can avoid short term competition, do it. The best way to compete in the long run is to actually not engage in any short term competition. And, you soon realize that the only worthwhile competitor in the really long run is yourself.

3. The beauty about competing with yourself is that you soon realize there is nothing to be gained by viewing people around you as competition. In fact, the only lens with which to look at people (or organizations) around you is whether they are potential partners/collaborators or not.

And, that brings us to the final idea – how do you effectively compete with yourself? By starting on a journey of continuous improvement. The only measure of progress that matters is that you’re solving different kinds of problems this year than you were last year. And, the only score that matters is whether you’re better today than you were yesterday.

 Pricing Amazon Web Services – The 200 words project

Here’s this week’s 200 word idea from The Everything Store by Brad Stone.

Amazon Web Services (AWS) allows entrepreneurs to plug into Amazons Servers and use it’s computing infrastructure. The AWS team wanted to price it with a traditional monthly/yearly rental system.

 But, CEO Jeff Bezos shifted the focus completely –

1. He decided to create an electric grid model where you pay 10c/hour of use. This was ridiculously cheap but he knew companies like Microsoft and Google wouldn’t want to play this game as it would constrict their generally high profit margins

2. He thus played to Amazon’s greatest strength – building large scale low margin businesses that attracted customers. He actively avoided what he considered Steve Jobs’ biggest mistake – making the iPhone so fantastically profitable that it attracted so much competition that ended up eating its market share. He believed high margins attracted competition while low margins attracted customers.

 When moving into a new territory/project, let’s channel Bezos and remember to play to our strengths.

 PS: The graph below illustrates this beautifully. Despite increasing revenues, Amazon.com has almost never made a profit – intentionally.

(If you look very closely, you can see that in 2010 the company accidentally made a profit. )
Source and thanks to: Benedict Evans’ blog

 ‘One thing is easy to agree on, though: competing directly with a company like this is very hard. ‘ | Benedict Evans on Amazon’s profit graph