Cam Pegg writes:

I’m re-reading Michael Porter’s seminal article, The Five Competitive Forces That Shape Strategy, and just had an OMFG-I-need-to-get-this-tattooed-on-my-forehead-so-that-everyone-I-talk-to-gets-the-message moment:

A narrow focus on growth is one of the major causes of bad strategy decisions.

The thing about growth is that it leads to bad strategy decisions if you care about profit. If all you care about is growth because you want to create a monopoly that you can then profit from indiscriminately through infinite supplier power, and you can raise millions upon millions of dollars to achieve that monopoly in such a way that you don’t have to care about revenue in the interim, the mechanics look a little different.

I’m a Porter’s Five Forces stan myself. I think everyone involved in building technology projects (and any business!) should read and understand them. And then read them again.

In particular, a lot of my work — and writing here — has been about addressing the outsized power of suppliers. Consider how much supplier power Facebook has over anyone in the publishing industry, for example: it doesn’t depend on publishers, but publishers sure as hell depend on it. It’s more concentrated than the publishing industry (there is one of it, many of them). The switching costs are astronomical because there is no real alternative. And its power creates great risk for publishers: a policy change could wipe out the industry.

Porter describes the problem as follows:

Powerful suppliers capture more of the value for themselves by charging higher prices, limiting quality or services, or shifting costs to industry participants. Powerful suppliers, including suppliers of labor, can squeeze profitability out of an industry that is unable to pass on cost increases in its own prices.

So what would it take to reduce supplier power to create a more equitable situation for buyers? Switching costs are reduced through the introduction of compatible, interoperable software from other vendors; a supplier’s differentiation is reduced by the introduction of software from other vendors that meets the buyer’s needs well; there are more viable solutions from more diverse vendors. In the Facebook example above, Twitter helped reduce supplier power; Mastodon and the open source fediverse reduces both of their supplier power. In fact, overall, open source software has been a great way to reduce risks to businesses from outsized supplier power.

To continue to run with my Facebook example, reducing supplier power through software has been a better strategy than imposing legislation (although there’s always a place for good legislation, not least antitrust reform, which we’ve needed for decades). When Canadian publishers came together to try and reduce supplier power through creating legislation that forced payments from Facebook, Facebook simply switched off the firehose and removed news from its sites in Canada. It turned out that the publishers needed it far more than it needed them.

I think a close read of Porter makes it clear that publishers would do well to support an open source fediverse that would reduce the power a handful of corporations have over them, but it’s hard for them to see it, in part because the switching costs are so incredibly high. Publishers are dependent on Facebook for audience, and the audience on the fediverse isn’t quite there yet because there hasn’t been the investment, so they don’t put in the investment, and the situation perpetuates itself forever. In effect, publishers aren’t capable of saving themselves, and it’ll take someone else who isn’t as dependent on Facebook to put in the investment instead.

The same goes for the many other industries that are similarly beholden to Facebook. Any of these industries alone can’t change the situation for the same reasons; together they might, but it’s likely to take an external convening force. Foundations, I’m looking at you. (Particularly any foundation that sees the risk to democracy itself from a single-vendor publishing market. It should help that we’ve already been through two Presidential election cycles where this risk couldn’t have been clearer if it was written in twenty foot flames.)

And because the outsized buyer power produced by an open, federated commons co-operatively supported by entities across industries that produced best-in-class social media platforms that were also communally owned would also be a hell of a risk to Facebook’s business, it is likely to want to get ahead of the situation somehow. It could also have allies who might potentially be worried about moving social media from centrally-controlled platforms to a more anarchic commons. Perhaps Facebook might address the risk by launching a network on the fediverse itself, and allowing itself to be the entity that puts in the investment, in a way that just so happens to shape the fediverse to benefit Facebook, eliminate any potential cross-industry collaboration and outside development, and ultimately defuse the risk from buyer power. Completely hypothetically, obviously.

It should go without saying that it’s all more complicated than I’m laying out here. But my core point is that the tech industry is an industry, which is to say it’s about businesses, which in turn are shaped by business forces. Yes, product design and technology architecture are incredibly important. But we ignore business strategy at our own risk, even as open source hackers trying to provide alternatives. There’s a very serious game here that must be won.