Being a distributor is no better than being a producer. They have different strengths and are reliant on each other. Who holds the power in the relationship is cyclical.
All platforms rise and eventually decline. Amazon has already started going downwards after it sacrificed quality in its chase for scale by opening up its platform to third parties and their counterfeits. Similarly, we'll see ecommerce in China move from Tmall to independently owned stores that allow for differentiation, higher service quality, and owning the customer relationship. Just like offline stores are now coming back, for the same reasons.
Amazon is fat and lazy now. They grew by offering the lowest prices on products you know, with fast shipping. Now, you don't know what you're buying or that you're getting the best price, and shipping isn't as fast.
That number thrown out at the end is pretty mind-blowing: Google pays almost a tenth of their total revenue just to stay as the default search browser on Safari on iOS and MacOS. And Apple gets nearly 5% of its total revenue from this one deal.
I'm not sure if we've seen this entirely play out yet. We're now seeing content companies (supply) starting to exert their power over the internet/media intermediaries (Disney is the recent example), so it may end up being a case that the intermediaries had a good thing going for a while, but...
IMO, you either produce something or you don't. Someone may be able to interject themselves into your transactions with your customers, but, ultimately, the power lies with the producer (they can just stop producing).
> the power lies with the producer (they can just stop producing).
It's not that easy. This presupposes that there isn't another producer that is capable of creating a comparable product. There's many studios that can deliver high quality movies. If Disney stops producing new content, they can continue to coast on the old content but those other studios will step in and take a growing amount of Disney's share of the market. As long as the new studios are willing to make a deal with the intermediaries, those intermediaries won't be the ultimate loser in this scenario. Disney will be.
Now if all the producers of high quality content decide not to deal with an intermediary then the story plays out a bit differently. In that scenario everyone is a loser and we go back to piracy being the best solution for most consumers.
TLDR; The author argues that you want to aggregate the demand side and offload actual production, inventory and even logistic to someone else. The example is Kylie Jenner who runs billion dollar cosmetic business through 5 employees and only handles brand/marketing while offloading everything else to others.
This is similar in advice from various life coaches like Tim Ferris et al. The problem with this model is that your supplier eventually will take over your marketing with parallel product and leave you in dust. Margins in business are like vacuum and people will eventually move in to reduce them.
"owning the demand", "aggregation theory" are all powerful advice, but it seems that it's mostly for big companies or stars. And maybe for VC based startups.
But is this relevant for a small scale entrepreneur ?
I think he says it right there "In short, if somebody successfully inserts themselves between you and your customer, they can exercise tremendous control over you, including taking a big chunk of your profits or outright killing you."
Read "you" as "large incumbent" and "somebody" as the small scale entrepreneur.
Author of the post here — I agree that the "how" might be what's missing the most. The point I'm trying to make with the post is really more of a "what" question. I sometimes talk to entrepreneurs who want to outsource their distribution through some creative channels. I'm arguing that one should fight as hard as they can to keep owning that relationship with the end customer, and that this may indeed be close to the only thing that matters in the whole chain.
That also explains why startups that have "just" a bunch of users, and no revenue, are still able to raise at massive valuations. Sure the proximate cause is that they'll be able to monetize that attention at some point — but the deeper insight is that attention is inherently valuable, because it's upstream of everything. Every transaction starts with a person paying attention to something.
You innovate. You deliver a similar solution in a simpler “good enough” way (rebar). Or solve something cumbersome (stripe), or create new markets (invision, Netflix)
Stripe raised $245M. Netflix raised 3.1B. invision too raised significant funds. and rebar isn't about a demand side business, it's a better supply side business.
The ultimate trade-off made between self-funding and raising outside capital is how much you can invest in growth at an accelerated rate. Unless you have a pre-existing brand you can tap into (like Kyle with her cosmetics or Clooney with his Tequila), it's nearly impossible...though some companies have done it. But, even with outside funding, outsized success is still rather difficult to achieve, so it's a matter of personal preference what route you go down at the end of the day.
There are a lot of startups trying to intermediate between small businesses and customers. They often start by providing customers for your business, and then will try to add more value-add tools into your pipeline, so that you are dependent on them (things like ecommerce platforms, CRMs, etc)
As a small business, work with them at your own risk - they promise to drive demand to your business but will take your margin as well since you won't have a relationship with your customers.
All platforms rise and eventually decline. Amazon has already started going downwards after it sacrificed quality in its chase for scale by opening up its platform to third parties and their counterfeits. Similarly, we'll see ecommerce in China move from Tmall to independently owned stores that allow for differentiation, higher service quality, and owning the customer relationship. Just like offline stores are now coming back, for the same reasons.