How Big Tech makes it hard for small companies to compete
Issue #96
Here are some fun tech facts: Google and Amazon both started in a garage. Facebook launched from a dorm room. It’s hard to picture today, but once upon a time, these companies used to be scrappy start-ups. Their founders took big gambles on big ideas—and now they dominate the tech industry. These businesses are household names generating billions every year. Not bad considering their humble beginnings.
It’s an impressive feat to build a company with that kind of reach and scale. They’re wild success stories that inspired countless others to bet big on a vision. They garnered lots of hype and showed people that it’s possible to build a world-changing company with nothing but a good idea.
But, the world looks much different today than when these companies took off. Starting a company from a quirky garage in Menlo Park is much harder now. And, the tech industry has matured a lot since Steve Jobs sold his Volkswagon Bus to help fund Apple. Today, it’s dominated by a few big players with deep pockets, it can be very difficult for scrappy start-ups to compete.
Those few big companies have so much money and market share that they aren’t necessarily bound by reality like smaller companies. Normally, you need a bit of initial capital to build a product or platform—and if you’re savvy and strategic, you can float your businesses for a while before you’re profitable. But eventually, you need to make money.
But when big companies like Meta, Amazon and Google have cash-cow products, they can float unprofitable products indefinitely. They can use a loss leader sales strategy—giving a product away for free or selling it at a loss—to expand into and dominate new markets.
For years, small sellers have complained that Amazon was copying their products and then weighting search results to favor its own merchandise. Internal documents confirmed this was the case. In some cases, they copied popular products and sold them for a lower cost.
And while that’s not illegal (or uncommon) for retail companies to make dupes of more expensive products, it hits a bit different when it’s a large company knocking off a smaller one.
For its part, Meta has created loss leader products to expand into new markets. Thanks to documents included in various lawsuits against the company, we know that Facebook Messenger Kids is intended as an on-ramp to the Instagram platform. And, because they earn so much revenue from other products, Meta can afford to pump money into a kids’ messaging platform they don’t charge for. These kinds of loss-leader products from Big Tech behemoths have made it increasingly difficult for smaller companies and start-ups. And when competition suffers, so do consumers.
While cheaper Amazon dupes or free products like Facebook Messenger Kids may seem to benefit customers, they serve a more strategic purpose for tech titans: fortifying the user pipeline and stifling competition. By subsidizing products with their deep pockets, these giants create barriers for startups and smaller firms, which ultimately hinders innovation and diversity within the industry.
When a small handful of companies drive all the research and development, it has a chilling effect on new ideas. The more companies competing for a piece of the pie, the stronger the drive to crack that big idea that catapults you ahead of the pack. And when customers have a number of options to choose from, companies need to price their products competitively.
Although Big Tech makes it difficult to compete, small companies are still determined to make a difference. I know because I started one. When you run a small tech start-up, you need to be smart with every decision. At Kinzoo, we’re working to make technology safer and better for kids—and that means making decisions as parents first and a business second. But we’re still directly competing with a product from one of the titans of Big Tech.
That extra pressure motivates us. It makes us work a little harder and plan a little better. It encourages us to test our assumptions and dial our designs—which I think makes our products that much better. But the market conditions created by Big Tech make it harder for mission-driven companies to break through. And we need more mission-driven tech companies if we’re going to shift the industry and create a better future for our kids.
A deeper dive
Here are a few helpful resources in case you want to really dig into today's topic:
In the race to develop artificial intelligence, a few large players dominate the field and it appears they’re squeezing out the smaller ones. So, the FTC is looking into Big Tech’s AI deals. According to the Washington Post, FTC Chair Lina M. Khan had this to say: “History shows that new technologies can create new markets and healthy competition. As companies race to develop and monetize AI, we must guard against tactics that foreclose this opportunity. Our study will shed light on whether investments and partnerships pursued by dominant companies risk distorting innovation and undermining fair competition.”
Meta is one of the companies investing large sums of money in the AI arms race—even though the technology isn’t generating revenue for them. According to the New York Times, Mark Zuckerberg said as much during a call with analysts: “We’re investing to stay at the leading edge of this. And we’re doing that at the time when we’re also scaling the product before it is making money.”
TL;DR
Too long; didn't read. It shouldn't be a full-time job to keep up on industry news, so here is a mercifully quick summary of some other notable developments:
ChatGPT could soon be coming to an iPhone near you. Apple just announced that Siri will be getting a boost from a partnership with OpenAI, and the AI technology will be integrated throughout the iPhone much like Microsoft’s Copilot enhances the Office apps. It’ll be interesting to see if the new integration is an improvement since so many other AI rollouts like Google’s and Meta’s have been underwhelming.
TikTok is already a dominant force when it comes to short-form videos, but it looks like the company might be trying to expand into search. Apparently the platform is testing a feature where users can take or upload photos and find similar products in the TikTok shop. According to Tech Crunch, here’s how it works: “Say you’re at a restaurant and really like the plate you’re served on. You could open up the TikTok app and snap a picture of it to find similar items available for purchase on TikTok Shop. Or say you’re online shopping and find a top you like that’s too expensive. You could save the image and then upload it to find something similar with a cheaper price tag.”
And lastly
Here are a few more pieces of original writing from me and my team—just in case you're keen for more:
If your kids enjoy gaming online, chances are they want to chat with friends while they do it. A lot of gamers turn to Discord to stay connected, but there are a few reasons parents might want to consider a safer alternative.
Summer break is just around the corner, and if you’re dreading the thought of kids scrolling online all day, this piece is for you. It’s full of tips to help your family find a tech balance during downtime.