Thread by @MarcellusInvest

If you are investing (or are planning to) in consumer tech companies you must read Jonathan Knee’s “The Platform Delusion”, our Marcellus Book of the Month. The book questions the moats of FAANG stocks, arguing that they are far weaker than commonly accepted

#MarcellusBOTM
(1/8)

You might disagree with some of the arguments made in the book, but its core proposition has been convincingly made with detailed research. It debunks some of the basic drivers of competitive advantage for consumer tech businesses that many have come to assume for granted.

(2/8)

Many of these cos make little or no money coz *barriers to entry* are low. Vertically specialised independent retailers have taken away from Amazon the most profitable parts of online retail + they are more profitable! Same with Netflix. Read this 👉bit.ly/331rEaz

(3/8)

Barring Facebook, the FAANGS and “platforms” like Uber & AirBnB don’t seem to benefit significantly from *network effects*. In fact, many of these businesses don’t even have network effects in the first place. Also, these firms do NOT operate in *winner takes all* markets

(4/8)

Such cos operate in mkts where digital has NO inherent competitive advantage over analog. A conventional shopping place or cinema has a far stronger local competitive position than Amazon or Netflix. Taxi operators make little or no money whether they are analog or digital

(5/8)

These businesses have made sub-optimal capital allocation decisions, hurting their free cash flows further eg. Netflix is making content and the book argues convincingly that Netflix has no competitive advantage in making content (neither does it have network effects).

(6/8)

“Platform” cos, in general, have charismatic leaders who have run these firms for a long time with long-term horizons, great execution & the ability to game regulation. It isn’t obvious how sustainable these advantages are. The same applies to many Indian “platform” cos too
(7/8)

In summary, the author says It is possible to create highly profitable digital businesses but the methods to do so are NO DIFFERENT from what you use to make highly profitable analog businesses.

Buy The Platform Delusion at a book store near you !

#MarcellusBOTM

(8/8)