Let’s say you run a startup that has a successful product, and you are now considering what product you should build or acquire next. 🧵
Something I find useful is mapping out the typical economic loop from start to finish, and then considering the startup’s position within that loop.
I’ll explain by looking at the current internet landscape and the strategic position of Google, Facebook, Amazon, and Apple. (I’ll adapt this to web3 in a future thread.)
Consider the path of a typical internet session, from the user to some revenue-generating action, and then (in some cases) back again to the user

(I wrote more about this here cdixon.org/2016/03/13/the…)
Suppose you are Google and a user clicks on an ad which leads to a $1 purchase. The strategic question is how Google positions itself to get the most of that $1 vs the complements and substitutes in this chart, now and in the future.
Note on complements: people usually think of substitutes when they think about competition, but with internet businesses complements are often a bigger threat & opportunity.
Hamburgers and hotdogs are substitutes. You generally choose one or the other. Examples in tech: AT&T vs Verizon, iPhone vs Android phone.

Hotdogs and hotdog buns are complements. Examples in tech: an internet provider and a search engine, a browser and a social network.
Many fiercest battles in the history of the internet have been between complements, going back to Microsoft vs Netscape.
Think of the economic loop pictured above as a model train track. Positions in front of you can redirect traffic around you. Positions after you can build new tracks that bypass you.
New technologies come along (which often look toy-like and unthreatening at first) that create entirely new tracks that render the previous tracks obsolete.
A big reason big tech companies invest in open source software is to “commoditize the complement” (see this classic Joel Spolsky post on the topic joelonsoftware.com/2002/06/12/str…).
It’s much better to have complements be open source and free vs controlled by a competitor. This is why, for example, the biggest contributor to Linux is Intel.
Looking at this chart, it should be clear why most of the big tech companies have efforts in almost all positions in the loop.
Amazon’s strength is its logistics network. Google and Apple are strongest at the device, OS and app layer. Facebook’s strategic position is the weakest but is making bold bets on next-gen devices. All four are trying to either commoditize or own adjacent layers.
Now of course what makes these strategic questions more art than science is you need to consider not just the loop today but in the near- and long-term future.

Predicting this is a complex and fascinating mix of technology, markets, psychology, culture, and strategy.
Ok web3 addendum (can’t help it 😂). Viewing internet services through the strategy lens is also one thing that makes “computers that can make commitments” so interesting. You can now commit various layers to permanent policies, which changes the whole surrounding chess board.
The strategy lens also helps contextualize what an incredibly visionary move of Google to buy Android in 2005 and then —maybe more impressively—giving it away for free and (partially) open sourcing it when conventional wisdom was still to charge for the OS (see Microsoft).

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More from @cdixon

26 Nov
There is a widespread view that the internet and software industry is now mature, that the historical pattern of disruptive revolutions every 10-15 years is now over. 🧵
Ben Thompson provides an excellent articulation of this view (as he often does) stratechery.com/2020/the-end-o… Image
In my experience, this view is tacitly held by most of the establishment: institutional investors, tech execs, policymakers, media, etc. It affects valuations, corporate behavior, media coverage, and policy making.
Read 19 tweets
24 Nov
Web2 is built on advertising. Big companies like Facebook and Google make most of their money on advertising, and many web2 startups build their customer base using advertising.
When you build a business on advertising, the theory is that if you retain enough customers, the long-term economics will work out and you’ll eventually be profitable.
However, there are a bunch of reasons that in practice this can be dangerous. @bgurley covers this well in this classic post abovethecrowd.com/2012/09/04/the…
Read 12 tweets
23 Nov
“Present state of emerging tech has flaws” is not a good argument against that emerging tech.
Serious tech movements are processes that play out over many years.
A good faith critique distinguishes between fixable, temporary weaknesses from fundamental limitations.
Read 6 tweets
21 Nov
The myth of "ETH killers" — why demand for blockchains will always outpace supply 🧵
For every important computing resource in history demand has outpaced supply. This includes CPUs, GPUs, memory, storage, and both wired and wireless bandwidth.
The core dynamic of computing movements is a mutually reinforcing feedback loop between applications and infrastructure.
Read 16 tweets
14 Nov
A very common experience in crypto/web3 is to have a friend who was previously dismissive — “it’s all scams” — become a convert after “going down the rabbit hole.”
It’s not a coincidence that people who have this experience almost always refer to a rabbit hole, popularized by the book Through the Looking Glass about Alice in Wonderland, where the logic and ideas are reversed on the other side of the portal.
Because once you dive in and learn about all the interesting things in web3, it’s the opposite of what you were previously told.

What’s actually a breakthrough for building trustworthy services on the internet is incorrectly portrayed as a haven for ponzis and scammers.
Read 8 tweets
12 Nov
Software has an extremely rich design space — closer in the breadth of possibilities to creative activities like fiction writing than traditional engineering.
Therefore, universal negatives like “there will never be great software created in category [x]” should be interpreted as analogous to “there will never be a great novel written in genre [y]”
If you want to bet against human ingenuity and creativity, go for it — I’ll take other side of that bet. 😉
Read 5 tweets

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