Gongol.com Archives: July 2022

Brian Gongol

July 7, 2022

Computers and the Internet Putting a private label on Big Tech

Political opportunists of both left and right have latched onto "Big Tech" as a common enemy. Never mind that the definitions are slippery and that technology has been a significant driver of both economic growth and social expression; the phrase "Big Tech" is a convenient bugaboo for anyone who needs to point to a vague monster under the bed. ■ Besides generally demonstrating a willful ignorance of technology's role in the modern world, these wily vote-seekers almost invariably ignore a central fact of all technological change: What displaces a powerful incumbent almost never takes the same form. Mainframes that once filled entire rooms pale in comparison with modern laptops. 35-mm film cameras have been replaced by smartphones. The station wagon gave way to the minivan -- which itself made way for the SUV. ■ In the case of "Big Tech", the individual firms that draw ire (whether justified or not) are unlikely to be displaced by successors that look just like themselves. If you want to decrease the power of the incumbent powers, it's unlikely that forced breakups or over-regulation will do the trick. Instead, the greatest leverage is likely to come from ensuring that the right environment exists for what comes next. ■ There are those, for instance, who want to see Amazon broken up. But a breakup into Amazon-1 and Amazon-2 isn't likely to bring about the results anyone really wants to see -- if any of the proponents can even elucidate what those goals are. ■ Amazon has survived decades of competition from Walmart, Target, eBay, and Google. But there's one competitor it hasn't really faced yet. ■ The competitor most likely to unseat Amazon isn't another "everything store" -- or, to be more precise, an "everything from anywhere store". Amazon's toughest competition is likely to be an as-yet-nonexistent "everything private label" store. Imagine the e-commerce love child of Amazon and Aldi. ■ Amazon's searches are growing ever more cluttered with off-brand merchandise. A staggering volume of fraud and abuse is being used to game the ratings as these unknown manufacturers try to claw their way to the top. Consumers can be forgiven if the search process leads to frustration and exhaustion as they try to sort the quality manufacturers from the off-brands and evaluate price-to-value accordingly. ■ A trustworthy site offering goods under a single in-house private label could undermine Amazon's "everything" strategy. One of the main appeals to shopping for groceries at Aldi is the promise that the company's store brands (which comprise the vast majority of what the retailer sells) are as good as competitive name brands, but at much lower prices. The company stakes its entire reputation on saving the customer the effort of comparison shopping. Costco's Kirkland Signature brand is based on much the same premise. ■ Amazon probably cannot escape a permanently-rising set of search costs for its customers -- that's the intrinsic and unavoidable consequence of trying to offer "everything". But the sharpest possible competition for Amazon is almost certainly a rival that offers "just one of everything", but with relentless attention to a high-quality, price-competitive product mix. Among other advantages, such a competitor would need far less expensive warehouse space than Amazon. ■ For such competitors to emerge, the right economic and regulatory environment has to exist. The potential profits to be made are huge -- the market will ensure that someone will try, sooner or later. But the spark is unlikely to come from intervention by politicians who are out to punish "Big Tech". Their job is to make sure they don't kill the next generation of competitors before they have a chance to thrive.

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