Some of the largest companies in the world are tech companies. They are growing in power and they're achieving levels of scale we've never seen before. Unicorns used to be called that because of their rarity. Now they’re practically routine.
These companies have a huge influence on our daily lives, sometimes even if we aren't directly their customers. For some of these companies, it’d be hard not to be a customer.
We spend so much time being in awe of these companies' success, but I don't think we spend enough time wondering about the consequences of this scale. We've internalized this belief that tech at scale is good.
But here’s the thing: scale doesn't make great companies or products. And we know that. McDonald's makes food at scale, but no one considers it to be the best or highest quality food.I don't think I've ever met someone who actually likes Comcast, or AT&T.
I'm going to show you three different companies running at scale, each bigger than the last (by market cap) so we can explore some of the effects scale has on companies and the world.First, I'd like to talk about Walmart.
If you're not familiar with Walmart, they are a huge retailer in the US and around the world that sells just about everything. You can walk into a Walmart and walk out with a cake, a Nintendo Switch, some fabric swatches, a rake, and get your prescription filled.Walmart started out from humble beginnings as a single shop in Arkansas. Walmart aimed to differentiate itself by selling everything a little cheaper than competitors, which they would do by keeping costs low.
Walmart is very good at keeping costs low. They're always on the lookout for inefficiencies.They asked deodorant makers to skip the exterior box because it cost a few extra cents per unit and people just threw it away immediately anyway.To reduce packaging, they had General Mills slightly straighten Hamburger Helper noodles so they packed more tightly in the box. That saves almost a million pounds of paper a year.
Walmart is using more efficient equipment in stores, and they're even installing solar panels on some of their stores.
This razor-sharp focus on lowering costs and prices made Walmart the biggest retailer in the US and for awhile they were the biggest company in the world. They are the biggest private employer in the US with over a million store employees.
And there's nothing inherently wrong with trying to lower prices and reduce inefficiencies. But when you take this mission to scale things start becoming unhinged.
As Walmart grew they started to gain more leverage with their suppliers, and they use it.In the late 90s Walmart was experimenting with the prices pickles. Sales for a gallon of pickles shot up when they were priced around $3, and so Walmart told Vlasic they wanted to take that price nationwide. When Walmart asks you to do something like that, you say yes, because if you say no, Walmart stops ordering your product, and Walmart is usually your biggest customer.
So Vlasic went for it. The gallon jars sold for $2.97 and Vlasic earned maybe a penny or two of profit on each jar.
And they sold like gangbusters. But no one really benefited. It cannibalized Vlasic's sales in other grocery stores. Their revenue went up but profits went way down, and supplying that many pickles to Walmart was a huge strain. Walmart wasn't making money on them either; it was more of a vanity thing for them. And customers didn't benefit because how many households really need a gallon of pickles? The pickles didn't get this cheap because of market demand; the price was strictly an invention of Wal-Mart's. People bought them because you'd be crazy to pass up a deal that good, and the pickles would sit in people's fridge and go bad. Eventually Walmart stopped selling the cheap pickles but shortly after that Vlasic filed for bankruptcy.
You might say things went sour for Vlasic. A real pickle they got themselves into.
Those were my only puns, I promise.Walmart pushes their suppliers for lower prices every year. At first this is okay. There are always some inefficiencies to fix at first. But Walmart will still push for lower prices and in many cases the supplier moves manufacturing overseas to keep up. Some suppliers just go under.
Shipping cheap bicycles across an ocean is probably using a lot more fuel than we ever saved from flattening out Hamburger Helper noodles. And the end effect of this is that Walmart has become a sprawling multinational corporation. They brought in over half a trillion dollars in revenue last year, more than any other company. But their margins are incredibly thin. Of that 514 billion only 3.8 billion was profit. Walmart is putting the squeeze on everyone they work with to get that 3.8 billion.
People say Walmart should pay their workers more, but they really can't. Doing some back of the napkin math, If they put 100% of their profits into payroll they could maybe raise wages by $1 an hour. To raise wages to $15 an hour Walmart would be losing money or they'd have to roughly triple their net profit margin just to break even. And that's just to make Walmart's store employees a living wage, this says nothing about the employees in the rest of Walmart's supply chain.Walmart's strategy of lowering costs and prices at scale has a shrinking effect on the global economy. They absolutely do lower prices, and prices stay down, but they're also pushing down on wages and profits for everyone that works with them. When Walmart opens a store in a town, net job gains are generally very modest, and the town will lose several other stores in the first five years.
And US taxpayers are paying for those low prices. US taxpayers spend about 6.2 billion a year in providing government assistance to the people who work in Walmart stores. That's more than Walmart made in net profit in 2019.
That brings a whole new meaning to the phrase "economies of scale."Next, I want to talk about Google.Google was awesome in its early days! The rest of the search engines were cluttered and full of ads and the search results were lousy, but Google was nice and minimalist, and their search results pages were clean and had super useful results.As a company, Google was fun and whimsical. They did fun homepage decorations for holidays. They did April Fool’s Day jokes back when they were still kind of fun. A job at the Googleplex was the envy of most any nerd.Google made their money from selling ads on the search results page, but they proudly ensured those ads were visually distinct from their search results. We loved when Google entered new businesses because they did a great job. Gmail was easily 10x better than other email providers.Google grew a lot throughout the 2000s because more people were starting to use the internet. But as Google approached market saturation it got harder for Google to grow. It's just getting hard for Google to grow in general because they're so big. If you want to grow by 5% that's tens of billions of dollars to add in market cap in just one year.And so Google has entered a lot of new businesses in recent years, many of which they entered by way of acquisitions, which is an interesting characteristic of scale. You might think that you become capable of doing a lot more on your own at scale with your resources but typically instead of just trying new things you wait for other companies to spring up and try new things, then you acquire them.
Google did try some in-house initiatives, like Google+, and a few dozen messaging services. Originally Google was a friend of the open web because they were a web search business that depended on a healthy open web. The Google of today is hostile to the open web.
They build their own browser now. Chrome has massive market share because Google aggressively advertised it, and now they give it preferential treatment with new products.Google builds things like AMP, which is a technology to make mobile web pages load faster while simultaneously cementing Google's stranglehold on advertising and analytics.
You don't need special tech to make your mobile pages quicker; you just have to reduce their bloat, but Google got plenty of publishers to sign on, presumably because Google has dedicated placement for AMP search results.
What it means is that independent publishers are a little less independent.Google Search itself is trying to dominate. Originally it was a kick off point to your actual desination. Now it extracts information from other web sites and surfaces that information right in your search results page, meaning those web sites don't get the traffic. Oh, and remember how Google used to brag about how their ads were ads and search results were search results? The line is pretty blurred now,to the point where companies feel forced to take out ads on their own company name just so that they appear on the top of the page.Google keeps looking for new growth opportunities in unfortunate places. A couple years ago they started looking at re-entering the Chinese market, which meant there were engineers working on building a product designed from the ground up with large-scale government censorship in mind.And a growing number of Google employees are now pushing on Google to not pursue providing AI technology to the military.Some Google employees are considering unionizing, and Google has started engaging in union busting techniques.
And that's what scale does to you. You start off being this fun, whimsical and competent company offering great web search whose company motto is "don't be evil", and then you become orders of magnitude larger and you're angling to become a military contractor.Finally, I want to talk about Apple. And full disclosure: I'm a huge Apple nerd, so that's going to color how I see things. When I talk about Apple reaching scale, I'm talking mostly about the growth Apple has seen since the iPhone started selling in large volumes, so roughly the last ten years or so. Since the return of Steve Jobs in the late 90s Apple established itself as a design and technical leader. They got back to health by ruthlessly cutting their product line to four products: consumer desktops and laptops, and pro desktops and laptops.
This strategy worked, and Apple’s computers were bold and made headlines. When they stabilized, Apple was able to dabble in other areas. They acquired SoundJam and released iTunes in early 2001,then released the iPod in 2001, and then they built an online music store in 2003, all of which were massively successful.They further evolved on iPod by building iPhone which would eventually turn Apple into a trillion dollar company.Apple was a fraction of its current size in the early 00s but they had incredible technical prowess. They built OS X and transitioned their Mac lineup to it. In Just over a year they transitioned their entire Mac lineup from PowerPC processors to Intel processors. Their first party apps were beautifully designed and worked perfectly with one another. In keynote presentations Steve Jobs would remark on how Apple didn't spend nearly as much on R&D as Microsoft did but they really got a lot of bang for their buck. With iPhone, some cracks started to appear. Apple delayed the launch of OS X 10.5 because they needed to move some developers to help get the iPhone OS ready. As iPhone exploded in growth and as iOS became a full platform to develop on, it started to become evident that Apple was getting stretched too thin.Now, Apple has almost 6x as many employees as they had the year iPhone was introduced. They have been putting out yearly releases for all their major OSes (and they added a few since iPhone was introduced), but quality of software has been very hit-and-miss.
Their different product lines are getting inconsistent amounts of attention. New iPhones are out every September like clockwork, but the iPad's release cycle is sporadic,and the Mac's is wildly sporadic, with years between refreshes for some models, which is pretty neglectful considering that Apple's Mac business alone could be a Fortune 500 company.And Apple's software quality has been suffering across the board, even their iPhone software. They're trying to do a lot of things at once and they're doing them poorly. and when Apple does make an update to some software, it's sometimes left off in a worse stateApple’s developer tools are also in disarray. Xcode's instability is a running joke in the Apple developer community. Apple's APIs are buggy and often poorly documented, and Apple's Radar system for tracking bugs is frustrating to use; it's rare to get a reply, and even rarer to find that a bug you reported is fixed.And instead of trying to focus and get things in order, Apple is instead continuing to push into new business after new business.
Steve Jobs knew in the late 90s that Apple couldn’t dig themselves out of their rut with more products and services. But at scale, the growth is too hard to say no to, and so Apple’s platforms and software continue to be neglected, and Apple will keep neglecting them and pushing into other businesses until it becomes an existential threat to the company. From a design point of view, Apple has done little of note. Their Catalyst design language on the Mac is downright lazy.Third parties are by far making the most interesting and beautifully designed apps for Apple platforms.Apple's industrial design is generally quite good as of late, but when there's a problem with it you can expect to wait years for them to actually fix it.At the risk of sounding dramatic, scale has cost Apple its soul. Merely existing every day at scale consumes all of Apple’s creative energy.
Apple is so big they’re essentially a country. There's at least one news site that will now report on Apple as though they're a country.
Apple's scale has turned Apple from being a cultural, technical and design leader, to being a big boring corporation that does disappointing things.They'll spend years making minor revisions to a laptop keyboard design they know their customers hate and isn't reliable.
Then, three years later, they pull a New Coke and bring back the previous keyboard design and everyone rejoices.They set up sophisticated corporate tax dodges. They'll accept hundreds of millions of dollars in tax credits they don't need from a small town in Iowa that really can't spare it in exchange for building a data center that will employ just 50 people, which they would have built anyway.They invest tons of person hours into building a secure enclave into iPhones to protect your data, then they design iOS to just back up all your data to an iCloud data store where Apple has a key to all your data, and run an ad campaign titled "What happens on your iPhone stays on your iPhone"It's really easy to feel powerless against the massive tech companies out there.But I don't feel powerless.Scale among tech companies is a systemic problem, and you can't just fight systemic problems with individual action. But I try to anyway.
I make it a point to use lower-scale products
I listen to podcasts on Overcast which is made by a solo developer. It's got cool features even Apple's podcast player doesn't have.When I want to do remote pairing I use an app called Tuple. Tuple has just three employees, all cofounders. They have taken no funding from VCs. There's no better remote pairing app out there, not even from the big players like Zoom and Slack.
In fact, I think a lot of the products we use are worse than they could be because a big company makes them. I buy DRM-free media from small independent sites.I use RSS to get my news and keep up with people.Most importantly, I try to pay for things more. When I pay people for software and services it means I'm supporting them and it means they work for me. I like that arrangement. I prepared for this talk using a lot of indie software.And let me be clear: I like these products a lot better! This isn't a sacrifice!
As enthusiasts of tech I think that our choices are important because we can be influential to others as they are choosing what tools to use. If you're an entrepreneur, you don't have to try to build yet another unicorn. I think you’d be better off aiming for something small. Why would you want to become a unicorn anyway?
You just get so big that analysts get mad at you when you bring in $46.08 billion in revenue instead of $46.93 billion. That sounds like a miserable existence.The web is beautiful. Your little online store is just as easy to reach as amazon.com. Making money at small scale is a very achievable goal.
You could bring in six figures of revenue with 1000 users paying under $10 a month for a product. And if you target small, niche audiences you can stay below the radar of the big players.
There are a lot of interesting business and product opportunities out there if you aren't targeting massive scale. When scale is a must-have, it's actually very limiting.Don't try to build the next Facebook. Try to build the next email.Almost all the social networks today are built so that you can't use them without having an account with that specific company. People design their networks like that because they want to be big like Facebook. But it's a lousy business model because it relies on you getting extraordinarily lucky and getting a critical mass of users.
But email's not like that. If I have an email address and you have an email address, we can email each other, not matter what. I don't have to make an account with a specific company, or any company at all. I could run my own email server if I wanted, it's not that hard!Even politicians can do it. I don't think anyone really got rich off of creating email, but email is a tool that people can get rich building things on top of.
So much value has been built on top of email. Today we use email in ways that its creators probably never even conceived of, and I guarantee you that long after Facebook and Twitter are gone, email will still be around.What if someone had built a decentralized Slack? (trick question: they already did, it was called IRC).What if ride-sharing apps were local instead of global? They might actually be sustainable businesses that way.Especially if they can clock in at under 4000 microservices.
And I think there's interest in this kind of thing.Remember when blockchains were cool for a hot minute? I'm sure it was mostly just because of excitement around Bitcoin going up in price, but there was a lot of interest in decentralization too. Maybe we can tap into that enthusiasm some.I think the industry is getting interested too. Jack Dorsey recently announced that he wants to develop an open standard for microblogging and he wants Twitter to ultimately be a client of that open standard.And even big tech companies are starting to feel fatigue from having to maintain all their own silos. A number of companies are onboard with developing the CHIP standard to make it simpler for IoT devices to get set up and interoperate with each other. I want to leave you with one last thought. Think about how many really talented engineers, designers, and product managers work at Apple, or Google, or Facebook, or any big tech company. These companies often have hundreds or thousands of people working on their products. Imagine if one of those tech companies disbanded, and all their employees split up and formed their own tiny companies, each making some new product.
I think about some of my favorite products made by small teams and I imagine the collective value all those little companies could create.
But instead, their talents are used to accomplish something small within a big company, perhaps making some incremental progress on some performance metric. So instead of a rich marketplace with a variety of products to choose from, customers get a couple choices from a couple of big companies and just hope that the company they choose keeps caring about the features they want.
And that, to me, is the case against scale.