I have been pondering with a “barbell effect” in the ongoing economy. Take Amazon as an example. It is obviously dominating the e-commerce world, and it is continuously growing. But is it a winner-take-all situation? Actually no. We see a plethora of e-commerce platform thriving all at the same time, such as Pinterest, Shopify, Temu… Platforms are not killing the brands either. Brands such as Nike and Sephora are all doing good businesses in their own categories.
So, what is going on?
I recently listened to a podcast called “The Playbook: Lessons from 200+ Company Stories“, which also pointed out this phenomenon. Let me quote a couple of paragraphs here. On why the niche can survive:
“The internet, while being extremely punishing to the middle, also enables these deep niches to form and sort of this interesting barbell effect, where if you keep your cost structure low and you’re super, super focused on a niche, you can aggregate all the people who are weird on the Internet about your niche in the entire world and basically aggregate them together and create community of people who like three-hour business technology podcasts.”
This essentially says that the Internet is able to reach very widely and then aggregate small demand points into one larger stream of demand that is large enough for a niche business to thrive.
On the barbell effect of technology, here is a great summary (Underline is mine):
“Obviously, the returns to scale got massively concentrated here, where you can see that the most valued companies in the world, not only are they technology internet companies, they’re much more valuable than they were before. There’s this sort of counterintuitive thing that the Internet was a decentralized network, it started as servers at universities, and then somehow it massively concentrated the returns to scale for the platforms that underlie everything that we do all day, every day.
On the flip side, it also enabled the viability of the long tail. It’s not that we have 30 mid sized retailers in the US anymore the way that we used to. Not at all. There’s Amazon, and then there’s, how many merchants are there on Shopify now? We’ve got something like 2 million Shopify merchants and over 30 million Amazon sellers. The platformification that the Internet sort of brought really enabled viability the long tail at the same time.”
That is very well said. So maybe we will see both dominant juggernauts and niche players co-existing in an economy.
Nevertheless, there is more I still need to understand more, especially from a small business perspective. For example, what is the difference of using Shopify to power your e-commerce vs selling on Amazon? I will explore this deeper in a later podcast.