Keith McLachlan: Thoughts

In terms of business, technology’s critical advantage is the ability to take the same inputs and create more outputs.  In other words, technology increases the levels of efficiency in business, lowers costs, and–ultimately–lowers the amount of capital that needs to be invested into a process.  The end effect: lower barriers to entry, greater efficiencies, and increased competition.

Let’s look at the Internet as a technology-platform:

Website are extremely cheap to make.  There are numerous open source platforms (Joomla, WordPress etc.) that are scalable enough to even make corporate and e-commerce websites.  Alternatively, there are trillions of web developers all competing for business, so its relatively easy and cheap to hire them.

Websites are international.  Visitors from anywhere in the world can visit a website with only a simple Internet connection.  Numerous aggregators, social networking sites, and forums exists that websites can be submitted to and, in marketing terms, a website’s exposure can grow exponentially at basically no cost.

Websites are automated.  Few (if any) employees need to be hired, thus limiting costs further.  Websites are up even when you are sleeping.  Processes can be automated, orders and invoicing and, even, payment automated…  All of this limiting a website’s running costs.

Websites are all one click away.  Even Google.com is just one click away from the smallest blog..  Move your mouse up to the url bar of your browser, type another website in…and wham-bam-thank-you-mam…you’re somewhere else.  Unlike in the physical world where if you wanted to go to another business, you would need to get in your car / bus / private jet to get there (quite often the effort involved just discourages you from doing it), the placement of “property” on the Internet has no real lasting advantage.  Only relevance is rewarded with long-term traffic, not the website’s url.

I can go on…but I think you get the point of how even the smallest cheapest website can basically compete head on with the largest one.  Deep pockets and big business do not guarantee success on the Internet.

A further point on this topic is that technology not only makes outputs cheaper (consumers win), but often lowers the capital investment needed to compete (capital scarce SME’s win).  Websites are cheap, hardware costs are falling, telecom costs are falling…etc etc…

Alternatively, look at it this way: big business originally competed based on returns to scale.  High fixed costs spread across huge volumes resulted in lower ‘per-unit of sales’ costs, higher margins, and larger profits.  Tech simply costs less these days and it is likely that this sector will continue to experience deflationary pricing pressure.  Hence, perhaps returns to scale are becoming less and less a competitive advantage in some industries…

Just some thoughts in response to Marc Ashton’s tweet.