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The network effect is anti-competitive – TechCrunch


Last week, a U.S. federal judge overturned Apple’s rules prohibiting app developers from selling directly to customers outside of the App Store.

Apple stock fell 3% in the wake of the news, which is seen as a win for small and mid-sized app developers as they will be able to form direct billing relationships. with their clients. But Apple is just one of the many big tech companies that dominate their industry.

The bigger issue is how this development will impact Amazon, Facebook, Grubhub, and other tech giants with online marketplaces that use draconian terms of service to keep their resellers submissive. The skirmish between Apple and the developers of small and medium-sized apps is just one small battle in a much larger war.

App makers pay up to 30% on every sale they make on the Apple App Store. Resellers on Amazon pay monthly subscription fees, 8% -15% sales commission, shipping, and other miscellaneous fees. Grubhub charges restaurants 15% of each order, a credit card processing fee, an order processing fee, and a 10% delivery commission.

Like app developers, online marketers and social media influencers all fall for the same big lie: They can build a sustainable business with healthy margins on someone else’s platform. . The reality is that the App Store, online marketplaces, and even the social networks that dominate their industries have the one-sided power to selectively de-platform and squeeze their users, and there isn’t much to it. to do about it.

Healthy competition exists within the App Store and between market resellers and aspiring social media influencers. But no one seems to be talking about the real elephants in the room, which are social media and the online marketplace providers themselves. In some ways, they have become almost like digital dictators with full control over their territories.

This is something that all small and medium businesses who are excited about a new online service for their industry should be aware of, as it has a direct impact on their ability to grow a stable business. The federal judge’s ruling suggests that the real goal of digital commerce is a direct billing relationship with the end user.

On the internet, those who are able to lead a horse to the watering hole and make it drink – outside the walled gardens of digital marketplace operators like Uber, Airbnb, and Udemy – are the real contenders. In content and e-commerce, this is what most small and medium businesses fail to realize. Your own website or medi possesseda, on a top-level domain that you control, is the only unhindered way to sell directly to end users.

Mobile app makers on Apple’s App Store, resellers on Amazon, and budding content creators on Instagram, YouTube, and TikTok are all under the absolute control of digital titans who are free to rule by their own rules. with uncontrolled power.

For access to online markets and social networks, we had a rough deal. We basically plow their fields like digital sharecroppers. Resellers on Amazon are forced to share their harvest with an owner who takes a gross percentage with no cap. Amassing followers on TikTok is creating an audience that is locked inside their place.

These tech giants – all former startups who built their audiences from scratch – are free to impose and selectively enforce oppressive rules. If you’re a small fry, they might ban you from asking for your customer’s email address and move you off for skimming, but look away when Spotify and The New York Times do the same. Both were already selling direct and through the App Store ahead of Friday’s decision.

How is that competitive? Even after the decision, Big Tech still has to decide who they let violate their terms of service and who they bogus. It’s not just their audience. It is their universe, their governance, their rules and their application.

In the 1948 US v. Paramount Pictures court case, the Supreme Court ruled that movie studios could not own their own theaters because that meant they could exclusively control the films shown. They stifled the competition by controlling which films made it to the big top, so SCOTUS separated them.

Today, social networks control what is seen on their platforms, and with the push of a button, they can hook up who they want, when they want. The great challenge that the Internet poses to capitalism is that the network effect is fundamentally anti-competitive. Win-all markets dominated by tech giants are more like government-controlled economies than free market economies.

On the one hand, the web gives us access to a global market of buyers and sellers. On the other hand, a few big vendors control the services that most people use to do business because they don’t have the knowledge or resources to put together a competitive website. But unless you have your own domain and good search visibility, you are still at risk of being misplatformed and losing access to your clients or audience members without any practical recourse.

The network effect is such that once an online marketplace becomes dominant, it neutralizes the competitive market, as everyone gravitates around the dominant service to get the best deal. There is an inherent conflict between the goals of a winner-take-all tech company and the goals of a free market.

Dominant online marketplaces are competitive only for users. Meanwhile, marketplace providers operate with impunity. If they decide they want to use half-baked AI or offshore contractors to monitor their terms of service and consolidate false positives, there’s no practical way for users to dispute. How can Facebook wisely rule nearly 3 billion users with around 60,000 employees? As we have seen, he cannot.

For app builders, online resellers, and creators, the only smart option is open source on the open web. Instead of relying on someone else’s audience (or software for that matter), you own your online destination powered by software like WordPress or Discord, and you never have to worry about get stuck when founders go public or their platform is bought for profit. hungry investment bankers. Only then can you protect your profit margins. And only then are the terms of service the laws of the land.

Politics aside, as former President Donald Trump’s misplatform demonstrated, if you’re kicked out of Facebook and Twitter, there’s really nowhere to go. If they want you to go, it’s over. It is no coincidence that Trump lost his Facebook and Twitter accounts the same day the Republicans lost the Senate. If the GOP takes over the Senate, watch Trump get his social media accounts back. Social networks keep regulators away by appeasing the legislative majority.

So don’t get too excited about the new Amazon influencer program. If you want to build a sustainable digital business, you need a proprietary media presence powered by software that doesn’t generate commissions, has access to your customers’ contact information, and has an audience that cannot be requisitioned. with an algorithm adjustment.