Silicon Valley is full of bad competitors...

Silicon Valley is full of bad competitors...

Summary: Part 2 of Bad Competitors

TOPICS: Hardware

[Here is part 1 on Bad Competitors]

I've realized that Silicon Valley is full to the brim with bad competitors. By bad competitors I mean other companies trying to commoditize your business while defending their core business; thus everyone is vulnerable to a bad competitor, someone that can provide a product or service at a fraction of your costs.

So for the newspapers, an excellent service such as Craigslist, which monetizes less than one percent of its business and still makes lots of profit, is a "bad competitor." There is no way newspapers can compete.

And there are thousands of startups in Silicon Valley that would absolutely love to be the "bad competitor" in their target market. In fact, that has to be the base line for any startup--that it can provide the product or service that is ten times as good for one-tenth of the price.

Okay, this is just my rule of thumb, but you get the picture, the startup's solution has to be massively compelling to overcome adoption/switching costs. Bad competitor startups will succeed because what they have is so much better than what is available, it is a no-brainer.

And that is the way capitalism works--money finds the path of least expense--if it is allowed to.

And so the future leads to a form of capital entropy. Anything that has a cost structure high enough, that can be attacked, will be attacked. Any business that has high profit margins is extremely vulnerable to attack by a "bad competitor."

But bad competitors are only bad to the victim companies--the market loves them because the customers benefit. However, after many millions, billions of these challenges to accepted business models, at some point, we will reach a interesting point in the evolution of our global society. We will have come to a point of maximum efficiency--what happens then?

Let me put it another way. About 12 years ago or so, I remember the thrill of interviewing Dr. Eric Drexler, one of the pioneers of nanotechnology. And the interesting thing was that Dr. Drexler was not much interested in the mechanics or the science of nanotechnology.

He said that the way our industries are progressing: manufacturing, chip industry, chemical sciences, biological sciences etc, we would get our nanotechnology society sooner or later. At the time, he estimated about 15 years. Clearly, it might be another 15 years from now, but whatever--it is not a long period of time.

What struck me was this: he said, what happens when we can make anything ten times better for one hundredth the cost? How will that affect our society?

And that is exactly the path we are on--what happens when we can make any product or offer any service, for one hundredth of the cost and at least ten times the quality?

What kind of society will we have? Clearly, it will be a society that will be completely and utterly alien to ours. It will be a society where not everyone will have to work, in fact work will have to be redefined completely.

Will it be a golden age or a frightful age? I don't know, but that's where we are all headed and we will probably see it in our lifetime...

Topic: Hardware

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  • Things that matter

    Interesting thought...if the idea that we can use our resources to reduce costs and have more efficiency, then you would think that we will reach a Utopia where money won't matter and we will focus on the grander things in life.

    But look at medicine, technology and almost any other science. We have cheaper materials and faster ways of doing things, but our expenses stay the same because we come up with new things to do.

    Automobiles are another classic example. The technology has gotten much better, but the prices have not dropped. As much as a steering system, engine or radio system may be "commoditized", we just add other things to the vehicle (active suspension, smart navigation, etc.) that will keep the costs at a higher level.

    We will simply have new tools (the commodities) to make great things to charge people money. That's the cycle.
    Paul C.
    • Correct

      The Romans and Greeks had impressive technology. In their day a similar high-convenience low work utopia based on further productivity advances could have been foreseen. Perhaps it was, for all I know.

      In fact in many ways we do indeed have a utopia compared with Roman times. But as said, we have to work for it, and I agree with Paul C. that we will continue to have to.

      Notes of caution:
      1. We could have a period of conflict and disease
      2. We could have natural disasters
      3. The amazing technology could start to speak for itself and try to take over (but if we were VERY lucky it might somehow provide enlightened leadership)
    • No leisure society...

      Labor saving technologies were supposed to usher in the Leisure Society and in the 1960s the concern was what would we do with all the time on our hands? How delighfully naive. Labor saving technologies meant one person could do more! It was like the paperless office promise...about as practical as the paperless bathroom :-)
      Yes, we will find work to do for all the idle hands.