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The secret recipe of the Internet Giants

Presentation to FIRST workshop in Ha Noi on May 18th, 2014 (national science day). More about FIRST at http://first-most.vn

Duc Ha Duong

on 31 March 2016

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Transcript of The secret recipe of the Internet Giants

Smile !
Amazon alone is 5 times bigger than his 14 followers combined !
Since they rely on long-tail dynamics, these platforms starts getting leverage when they have a huge number of users in their crowds and that a significant number of meaningful connections can be made. And from there, the bigger, the more efficient they become hence they tend to be natural monopolies. Worldwide, since China aside, the Net has no borders. In that situation, financing capacity becomes a strategic element since you have to be able to grow faster than your competition.
Impact on scale
Do as you see fit : since you know them so well, sometimes even better than they know themselves, the platform has the power to dictate new rules to the industry by manipulating the behavior of your customers, in real time.
Once AirBnB controls who travels where, and when they have enough volume, they can influence the standard by setting up their own criteria. They can push certain type of rooms of favor those who pay more. They can predict the transportation needs better than Vietnam Airline and optimize all flows by matching people together.
Transform the industry with your Alliance
Uber is disrupting transportation
The secret recipe of the Internet Giants
What can Vietnam do about it ?
Apple has 800 000 000 credit card numbers !
You then transform you customer into partners to create an Alliance : you invite your customer to work for free and provide personal information in exchange of an improved experience. Your fans write reviews, comment or rate products, and give their credit card number.
In return, Amazon provides well qualified advice about the books you will love, iTunes helps on the music they want to hear.
Forge your Alliance with the crowd
The Long Tail revolution
This is not just about books !
"In an era without the constraints of physical shelf space and other bottlenecks of distributions, narrowly targeted goods and services can be as economically attractive as mainstream fare. As a consequence, we are turning from a mass market back into a multi-niche nation, defined now not by our geography but by our interests." The liquidity and frictionless movement of information is hypertargeting hence procure value to previously unexploitable information.
At Borders, because there is only a limited amount of room in the bookstore, the store makes a selection of a few best-sellers, the short heads, who are the only one who get sold. The ability to make the right choices becomes paramount in the profitability of the book selling business hence the limited options. In online stores, virtually unlimited choices allows to make a substantial profit across the board even if, individuall, each book is making very litlle sales.
Airbnb disrupts hotel industry
... for free, as long as you don’t betray it.
Example with AirBnB : individuals are offering their house or a room inside their house for rent. It works well because users are clearly identified and their background can be checked on most social networks. AirBnB adds up to layer of trust by taking care you your credit card number and adding up their lawyers and insurance.
The Crowd works for you !
It is happening in mobile apps, it is happening with our relationships where we develop, in Facebook or LinkedIn, a long tail of friends.
Since both buyer and seller give a rating on each other, they can also decide that anyone below a certain score gets penalties or even un-listed, which distorts the market in favor of the views of the platform. What is allowed is what they decide to allow :
“Code is law”
Once you become a monopoly it becomes almost impossible for competitors to challenge you apart from :
loosing your capacity to innovate (ossification) ;
betraying your crowd (Terms of Service) ;
government intervention (forced split).
Incremental innovation
consists in improving the way a given function is already implemented : trains that move faster, cars that cost cheaper, etc. To achieve that you need to look across your borders what is being done, then lock down your borders through protectionnist laws, and start pushing your own engineers
Disruptive innovation
is about inventing totally new behaviors that do now exist yet. It’s quite challenging since there is no model to folllow.

Developing countries, while they still need to develop incremental innovation, are totally in the competition for the new, disruption innovation. So we should focus on both (though differently)
Everyone can disrupt everywhere !
At the frontier of Innovation ...
Human to Human is business as usual
Leapfrogging takes faith
In developed countries legacy players have strong influence and lobby power which slows down disruptive innovation. They resist to change because it commonly represents a threat to their short-term profits and they have huge power on the institutions to enforce the protection of their interests. While in emerging countries the absence of a legacy makes every creative initiative much easier to grow.
No legacy
"We need to rethink our strategy of hoping the Internet will just go away" !
The western civilization which is very individualistic is not suitable for a connected economy where behavior is socially oriented.
For example in Europe concerns of privacy and individual liberty are so strong that it hinders socially effective policies.
"Culture eats strategy at breakfast"
What is the Cause that gathers your Tribe ?
The new usages are actually closer from the pre-existing customs of developing countries, so we get an edge. Indeed, thanks to the progress of technology, we are shifting back towards more natural behaviors since human don’t need to adapt to the machine as much as before. It’s the machine coming closer to human (Ex : Google Glass, quantified self).

Therefore in economies were machines were scarce, natural behavior is closer to what the future holds.
Impact on privacy
The model relies upon the crowd working for free AND during that process giving away personal information, such as credit card number, personal taste, geographical situation, habits… the capacity for the platform to transform that information into money comes from the fact that the information is not publicly available to anyone. That asymetry of knowledge is therefore crucial and the more exclusive information the platform can get, the more profit. Hence they are constantly walking on that thin line between trust and betrayal, and working out actively to expand the perimeter of acceptable knowledge.
Apple started with music
On a conventional trade basis, that enables you to gather a massive number of happy customers.
Start with a killer app.
Trust is the new currency
You can then monetize your relationship by inviting third parties to make business with the crowd that put trust into you. From the point of view of the platform, these economic actors are not suppliers nor customers. They are a new form of economic entity we call "over-contractor". Your role as platform is to procure the trust to guarantee a safe transaction for all parties.
Invite over-contractors
Let's get prepared !
Digital is not an industry like print is not an industry. All industries will progressively enter into the digital era, simply some have been faster than others because they were less capital-intensive (press, advertisement, music...).
GAFA were the first generation
NATU is the new generation (Netflix, AirBnB, Tesla, Uber)
No industry will escape
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