The shrinking shelf life of ecosystems

One of my favourite business frames in the recent past has been Jeremy Liew’s “When a consumer market is new, distribution wins. As consumers become educated, product wins. When products reach parity, brand wins.”

Two events happened in the last fortnight that made me reflect more on this. The first was Apple’s power move on Facebook and Google. The second one was here in India – FDI regulations affecting Amazon and Flipkart. Both were shows of influence, and involved distribution.

It made me realise that the shelf life of this entire distribution-product-brand cycle is shrinking. Disruption is happening far before organisations can take advantage of wins at a previous level.

Distribution: Let’s take Apple as an example. While it might be powerful ostensibly on the strength of its products, I believe the play is as much distribution – App Store. The recent example (above) is proof of that strength. In fact, all the GAFA battles have the same theme. Distribution strength goes hand in hand with exclusive touchpoints, which serve as a medium to deliver and build more trust.

But that distribution has been disrupted! Spotify, and now Netflix and Epic (Fortnite) are examples of companies which are moving out of paying the App/Play Stores’ toll tax.

Product: The moves by Spotify/Netflix/Epic are all on the strength of the product. I am not really clued in on the music and game contexts, so let me take the Netflix narrative forward. Apple and Amazon recognise this threat, the latter is already showing examples of trying to play catch up using Prime. Amazon can indeed subsidise this play for longer, thanks to advantages accrued by other plays primarily in distribution. Netflix, on the other hand, is continually trying to keep its head above water. But despite no original advantages in distribution, it continues to be the dominant player in the domain. Just a small note on music though – in the first weekend of February, Marshmello’s concert on Fortnite had 10 million folks tuning in. Around the same time, Superbowl had a 98.2 million viewership. Tencent holds a 40% stake in Fortnite. 🙂

A more visible play can be found in the other kind of product – physical ones to extend and enhance the ecosystem. Add “smart” to watches, speakers, home, car, and you get the picture of what’s happening. The goal is ecosystem stickiness. But I cannot remember a non-GAFA product here that scores on differentiation and success.

The best examples of product disruption, however, would be direct-to-consumer (DTC) brands. The rush from CPG majors to acquire them is proof of that. More on DTC in a bit.

Brand: This is the final act, and the prize is consumer trust. By bringing the hammer down on Facebook and Google, Apple (again) underlined its worldview on privacy. As I have written before, a worldview is bound to be polarising. As a non-fan, I felt it was extreme. An Apple follower would applaud it.

On the strength of its product, Netflix is also a brand with a worldview. It is too early for me to see how this will pan out. So, at the risk of an incoherent narrative, let me switch tracks here.

DTC. The number of  brands that have been built on the back of a differentiated product is rising. Bonobos, Warby Parker, Casper have all built their brands on the internet, based on pricing and sometimes, a stated social mission. They have then extended themselves offline, thereby smartly disrupting product and distribution in one fell swoop.

The overall trend can be seen in many places. For instance, IMO, AirBnB has disrupted all three aspects above. Maybe Tesla too.

What next? It is still early stages. But my thinking is this – if I take the original frame and apply it to the consumer market at large, the internet worked as a distribution disruptor. In the early stages, it was truly a medium that surfaced the long tail. In a time-scarce world, they increasingly delivered choice, convenience and consumption seamlessness. Those who cracked this early eliminated offline incumbents and became the new gatekeepers. Amazon for products, Facebook for social connections, Google for well, anything, and even Netflix – for content. Through some great bundling of distribution, product and brand, they built consumer trust for an ecosystem. From a business perspective, the strength of that bundling is what lowers acquisition cost and increases lifetime value.

But as Netflix and DTC have shown, the shelf life of that advantage is already proving to be small. Apply the distribution-product-brand frame to a newspaper chain (vs HuffPo) /television network (vs Netflix) /education institution (vs Coursera) /restaurant chain (vs Swiggy) and so on, and the shelf life they enjoyed, and you’ll see what I mean. Now, the chokehold can be broken faster.

As the internet matures, choice, convenience and consumption seamlessness will be taken for granted. In fact, as Scott Galloway points out, in a world of infinite choice, a consumer would prefer confidence in the (fewer) choices presented to them. Ecosystems of distribution-product-brand will be built faster and likely not in that order either. In a post-internet era, victory looks possible only if all three aspects are secured simultaneously, and continuously.