Distribution Hierarchy in the Digital World
In the vast landscape of the internet economy, a distinct pyramid of dependency emerges, as highlighted by Gennaro Cuofano in "The Business Engineer." This pyramid, while offering opportunities for innovation and growth, also presents challenges due to the inherent risks and vulnerabilities.
At the base of this pyramid, we find the foundational layers of the internet. The Internet Protocol, DNS, and web standards, along with cloud infrastructure from giants like Amazon Web Services (AWS), Microsoft Azure, and Google Cloud Platform (GCP), form the bedrock upon which the entire digital economy rests.
Building on this foundation, we find the distribution giants. Search engines like Google control how content is found, while social media platforms such as Facebook, Instagram, TikTok, Twitter/X, LinkedIn, and video platforms like YouTube dominate the avenues through which content is discovered, recommended, and navigated. App stores, such as Apple's App Store and Google Play, further dictate the traffic flows, determining which apps gain visibility and traction.
Above these distribution giants, we encounter the demand aggregators. Companies like Amazon, Netflix, Spotify, Uber, Airbnb, Etsy, Shopify, and eBay bring together buyers and sellers at an unprecedented scale, capturing consumer demand and commoditizing suppliers in the process.
The strength of these aggregators lies in brand loyalty and market position, but owning distribution is a strategic escape route for businesses. AI-generated services increase dependence on these distribution filters, further consolidating their power.
Content providers, such as SaaS providers, publishers, creators, and e-commerce apps, are located above aggregators and are the actual producers where innovation and differentiation happen. However, they remain dependent on the layers below for distribution, putting them at risk of being easily crushed by changes at lower levels.
Businesses, including SMBs and startups, are located at the very top of this pyramid. They carry the maximum risk and minimal leverage, relying on infrastructure, platforms, and aggregators for various services. Infrastructure monopolies like AWS and Azure can dictate terms because businesses cannot function without them, making them fragile and vulnerable to changes.
While value may flow upward in the internet economy, power always flows downward. These distribution giants decide who gets visibility, with their weapon being scale and monopolistic control over attention. AI reshuffles the pyramid but doesn't erase it, with power still residing at the bottom layers.
Understanding this pyramid of dependency is crucial for navigating the complexities of the internet economy. Businesses must strive for agility while managing their vulnerabilities, ensuring they remain resilient in the face of ever-changing market dynamics.
