The network effect is anti-competitive –

Last week a US federal judge struck down Apple rules prohibiting app developers from selling directly to customers outside of the App Store.

Apple stock fell 3% on the news, which is being touted as a win for small and medium-sized app developers as they will be able to build direct billing relationships with their customers. But Apple is just one of many big tech companies dominating its field.

The bigger issue is how this development will affect Amazon, Facebook, Grubhub and other tech giants with online marketplaces that use harsh terms of service to subjugate their resellers. The clash between Apple and small and medium-sized app developers is just one small battle in a bigger war.

App makers pay up to 30% off on every sale they make on the Apple App Store. Resellers on Amazon pay monthly subscription fees, sales commissions of 8% to 15%, fulfillment fees and other miscellaneous charges. Grubhub charges 15% of every order from restaurants, a credit card processing fee, an order processing fee, and a 10% delivery commission.

Like app developers, online resellers and social media influencers are all falling for the same big lie: that they can build a sustainable business on someone else’s platform with a healthy margin. The reality is that the app stores, online marketplaces, and even the social networks that dominate their territories have the unilateral power to selectively remove and squeeze out their users, and not much has been done about it. Have to go

Healthy competition exists within the App Store and between market resellers and interested social media influencers. But no one is talking about the real elephants in the room, which are themselves social network and online marketplace providers. In some respects, they have become almost like digital dictators with complete control over their territories.

This is something that every small and medium sized business that is excited about some new online service catering to their industry should be aware of it as it directly affects their ability to grow a stable business. Is. The federal judge’s decision shows that the real goal in a digital business is a direct billing relationship with the end user.

On the Internet, the people who are able to lead the horse to the water and drink them – outside the walled city of digital marketplace operators like Uber, Airbnb and Udemy – are the true contenders. In content and e-commerce, most small and medium-sized companies do not realize this. your own website or proprietary intermediarya, a top-level domain that you control, is the only autocratic way to sell directly to end users.

Mobile app makers on Apple’s App Store, resellers on Amazon and aspiring content creators on Instagram, YouTube and TikTok are all under the complete control of digital titans who are free to rule by their own rules with uncontrolled power.

For access to online marketplaces and social networks, we got a raw deal. We are basically plowing their fields like digital sharecroppers. Resellers on Amazon are forced to split their harvest with a landlord who takes a percentage of the gross without any cap. Accumulating followers on TikTok is building an audience that is locked inside their venue.

These tech giants – all former startups that built their audiences from scratch – are free to enact and selectively enforce oppressive rules. If you’re a little fry, they may stop you from asking for your subscriber’s email address and deplatform you for skimming, but look the other way when Spotify and The New York Times do the same thing. Both were already selling directly and through the App Store before Friday’s decision.

How is he competitive? Even after the ruling, Big Tech still has to decide who they let violate their terms of service and who they remove. It’s not just their audience. It is his universe, his rule, his laws and his enforcement.

In the 1948 court case United States v Paramount Pictures, the Supreme Court ruled that film studios could not own their theaters because it meant they could exclusively control which films were shown. He suppressed the competition by controlling which films made it to the marquee, so Scotus disbanded them.

Today, social networks control what is seen on their platforms, and with the push of a button, they can hook up to whomever they want. One of the biggest challenges facing Internet capitalism is that the network effect is fundamentally anti-competitive. All markets dominated by tech giants look more government-controlled than free market economies.

On the one hand, the web gives us access to a global marketplace of buyers and sellers. On the other hand, some major providers control the services that most people use to do business because they don’t have the knowledge or resources to make a competitive website stand out. But unless you have your own domain and good search visibility, you are always in danger of being deplatformed and losing access to your customers or audience members without any practical recourse.

The network effect is such that once the online marketplace is in effect, it neutralizes the competitive market, as everyone turns to the flagship service to get the best deal. There is an inherent conflict between the goals of a winner-takes-all tech company and the goals of a free market.

Major online marketplaces are competitive only for users. Meanwhile, marketplace providers operate with impunity. There’s no practical way for users to fight if they decide they want to use half-baked AI or offshore contractors to police their terms of service and expose false positives. How can Facebook judiciously control nearly 3 billion users with about 60,000 employees? As we have seen, this cannot happen.

For app makers, online resellers, and creators, open source is the only smart choice on the open web. Instead of relying on someone else’s audience (or software for that matter), you own your online destination powered by software such as WordPress or Discord, and when the founders go public or their platform is purchased for profit, So you don’t have to worry about squeeze-hungry investment bankers. Only then can you protect your profit margin. And only then the terms of service are the law of the land.

Politics aside, as the deplatforming of former President Donald Trump demonstrated, if you turn away from Facebook and Twitter, there’s really nowhere else to go. If they want to get you out, the game is over. It is no coincidence that Trump lost his Facebook and Twitter accounts the day the Republicans lost the Senate. If the GOP backs the Senate, watch Trump take back his social media accounts. Social networks shun regulators by appeasing the legislative majority.

So don’t get too excited about the new Amazon Influencer Program. If you want to build a sustainable digital business, you need a proprietary media presence powered by software that doesn’t charge commissions, has access to your customer contact information and an audience that can’t be commanded with algorithmic tweaks. can be done.

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