Central to strategy is the art of reading context; or in other words, understanding the world in which you’re operating. The following piece - longer than usual - is about that.
In it I attempt to describe a general principle which I’ve found makes sense of a lot of things, and which many strategies can be designed around. I want to say up front that I am in no way a scholar on these issues; but to understand them at the highest level I don’t think you need to be. What matters more is getting a “feel” for these forces, so that’s the goal of this piece.
It’s interesting to me anyway, so hopefully you enjoy.
Imagine it’s 1997, and you want to buy a watering can.
Chances are you would make your way to your nearest hardware store or garden centre.
Depending on where you live this might be a local independent, or possibly a regional or national chain. When you arrive you would be presented with a selection of cans “curated” by the buyers of those stores. These could be anything from mass produced commodities, all the way down to fancy “artisanal” examples. From that range you would then choose - based the usual factors of price, your personal needs, and which you just so happen to fancy on that particular day.
Now consider how you would buy a watering can in 2020.
Obviously it’s possible to go through the 1997 process - and many people would. More likely however you would do what I did the other day: go onto Amazon, click on the one which had managed to make its way to the top of the algorithmic pile (with free Prime delivery, naturally), and one-click it. A day later the can arrives, job done.
The above transition is a simple example of a macro phenomenon which is quietly transforming not just commerce, but all parts of our lives and wider culture: concentration.
Concentration is the process by which energy and resources which were once widely dispersed become concentrated in fewer and fewer places, on fewer and fewer concepts, and with fewer and fewer people.
The watering can example is a simple way to illustrate it.
In the 1997 model, the sum total of “money spent on watering cans” was widely spread. From a retailer perspective, although a national chain would have received a lot more trade than a single local garden centre, it wouldn’t have been anything approaching a “winner-take-all” scenario. The biggest retailer might have commanded, say, 10% of watering can purchases - with the remainder being scattered across the rest of the industry. Compare this to 2020, where that same trade is gradually pooling with one retailer - Amazon - who by and by are able to become infinitely more dominant in this market than any bricks-and-mortar retailer would have dreamt of in the 90s.
(At this point please note that I am of course simplifying for illustrative purposes - this piece is about the concept of concentration, not Amazon or watering cans).
Needless to say the precise same story applies to the manufacturing side of the equation. We all know that if you’re not in the top two or three ranks on Google for a particular search term then you’re nothing - and pretty much the same thing applies on Amazon. Either by luck or judgement, the selection process of the algorithms will end up elevating one or two cans to a pretty much unassailable position - not only in terms of rank, but also in terms of reviews, delivery speed, and whatever else matters to the Amazon shopper. These chosen cans are then able to command a far higher market share than any can has ever commanded before. Rather than having 100 cans each with 1% of the market (a crude example but you know what I mean), you have 2 cans with 90%, and 98 cans sharing the remaining 10%. Such results accrue of course not because of any particular qualities of the dominant cans, but simply because of their ability (or fortune) in playing the Amazon game.
One might call this a story of progress and growing convenience, but you don’t have to be very insightful to recognise the broader consequences.
The winner-take-all effects of concentration in the watering can market mean that profits and employment start to pool into a small number of hands, and a small number local communities (in all likelihood the Pacific Northwest on the retail side, and China on the manufacturing side).
For a particularly extreme example of this, I remember reading an interesting anecdote about the transition of power in the photography industry from Kodak to Instagram. When Instagram went public, they had 13 employees to Kodak’s 150,000, and a market capitalisation a fraction of the size. Thus as Kodak crumbled and Instagram rose, the transition of power not only resulted in an epic concentration but also an epic contraction; a whole industry effectively vanished from the global economy. Less money, in fewer hands, in fewer places.
This is an idea I dare say you’ve heard before, and I expect I’m not really educating you here. Concentration has always been an inevitable consequence of technology, since technology is always geared towards helping fewer people produce more output - and so what the Spinning Jenny and early factory lines started, the internet has only accelerated.
What I think is less appreciated however is the way that concentration is playing out in all areas of our lives, not only commerce.
One pretty pertinent example of this at the moment is news.
Via precisely the same mechanics as watering can sales, news has moved from conditions of diversity and spread, to homogeneity and concentration. The most pithy of illustration this, which I’ve heard a few people complain about recently, is “why has America’s news become everybody’s news?”. Why indeed. A growing number of people around the globe know a lot more about America’s politics than their own, and this is the result of concentration; as attention accrues to a smaller and smaller number of publications, platforms, and - most importantly - topics.
On the subject of topics, concentration is successfully whittling them down to a handful of broad narratives which are coming to be the “only” stories which get covered. I am by no means in a position to authoritatively say what those things are, but anyone could make a pretty solid guess.
The reason for this, just as with all other forms of concentration, is technology’s removal of “barriers” that formerly localised and diversified subjects. “Barriers” could be anything - from national borders, to language, to geography, to culture, to logistics, to speed of travel, to relevance - all things which used to see human society operate in decentralised “units”, and which are being gradually dissolved.
You can visualise it like this: imagine a plastic tarpaulin, laid on the ground, and soaked with water. Naturally the water would gather into thousands of little pools and droplets based on the undulations of the surface, like on a sidewalk after a heavy rain. Then imagine lifting the tarp at all four corners, thus removing the barriers, and watching the water rush to the centre to create one big pool. That's concentration. One watering can. One retailer. One news narrative.
It’s important to recognise here that, contrary to a classical free market interpretation, this is not a process generated by consumer choice. It is rather an inevitable and irresistible consequence of the power laws embedded in the open system that is the connected world. It would not be possible to reject these effects even if you wanted to - any more than it would be possible to “choose” to live functionally without a phone or an email address.
(The illusion of consumer choice is a really interesting topic which I may cover another time: in short society doesn’t take its shape because we proactively choose it to be the way it is; it takes its shape as a function of incentives, disincentives, and other chaotic factors coming together to “force” a certain unpredictable outcome - which we later pretend was the idea all along).
Anyway I digress. Back to concentration, look around and you’ll find this story repeated everywhere.
- The movie industry has gradually concentrated around a diminishing number of pre-sold “franchise properties” (Marvel, DC, Jurassic Park, Star Wars, James Bond, and endless remakes and reboots of once original material).
- In sports, attention has concentrated around the highest levels, making it ever harder to be viable as a lower division team or athlete. Compounding this further, we also see a gradual concentration in which sports people are interested in in general - e.g. more football, less cricket, etc.
- In music, the erosion of diversity one might hear on hit radio is palpable. On an anecdotal level, we might remember when, in the early 90s, the top 10 at any given moment might be shared by hip hop, pop, R&B, soft rock, heavy metal, and grunge simultaneously - something which seems hard to believe now. On a more scientific level - and proving that such opinions are more than just nostalgia - researchers from the Spanish National Research Council showed that “diversity of note combinations has consistently diminished in the past 50 years”. Yes, music has become concentrated on a technical level, not just in the ears of the beholders.
How about demographically? Before coronavirus put a bump in the road, the trend towards urbanisation was of course a quite literal example of concentration. Why was this occurring? In part because of cultural and commercial concentration. When fewer and fewer companies command more and more of the market, and when those companies cluster geographically, then naturally people must flock to those localities. There has long been a sense amongst young people in the UK that you can only really “make your way” in London, and unfortunately they have a point. Much the same can be said for New York, San Francisco, and various other concentration hotspots.
Quite honestly I struggle to think of a trend which isn’t characterised by concentration. My last newsletter - about “boring startup brands” - was just the same. A generation of founders raised on the same cultural diet, reading the same magazines, looking up to the same companies; of course we're going to produce similar companies.
Concentration then is equally a social, commercial, and cultural phenomenon. It is a bigger thing than globalisation (which shares some elements but is less holistic); it is the generalised process by which many becomes one; by which diversity becomes homogeneity; and by which the heterodox becomes orthodox.
I realise that the tone of this piece has been a bit critical, and that one could easily write a positive article about concentration. That would probably make points such as:
- Concentration is the core function of progress
- It represents the coming together of humanity into a single people
- It elevates the best and most efficient of everything, filtering out the noise
- It lowers prices for everyone, and increases access to goods and comfort
- It promotes peace
I’m not going to comment on any of those points in particular. My only purpose here was to provide a rough, sweeping sketch of the process - and to observe that it is happening, it is universal, and it touches everything.
For me, this makes it a useful mental model with which to understand all sorts of varied events which might otherwise seem strange or inexplicable.
Hopefully it can function a bit like that for you too.