- What are winner-takes-all-markets?
- Monopolistic Practices:
- Pillars for a winner-takes-all approach:
- Culmination stack.
- Examples of the culmination stack.
What are winner-takes-all-markets?
Winner-takes-all markets are a perceived new paradigm in which an organisation can garner a substantial portion of a market share, and become a monopolistic organisation within a set market.
- Examples of winner-takes-all-companies include:
Google.
Meta.
Tesla.
We believe that there is a simple formulation to predict and understand why, and how, an organisation becomes a monopoly, and thereby follows the philosophy of a winner-takes-all approach.
Pillars for a winner-takes-all approach:
- Use of AI and ML to create exponential growth.
- Culture from a top-down, bottom-up approach must be engrained with innovation and success. Often the Founders are indicators towards this vision. Not only through past endeavours, however also within their perception from interviews and commentary online.
- Anchoring Long Term Competitive Moats:
- Industry Outlook:
- Competitive Environment:
- Innovation & culmination stack:
What is the philosophy of a culmination stack?
The ideology of a culmination stack is a philosophy culminating of a series of interlocking inventions and micro-changes, that thereby result in mass improvements over time. This philosophy stemmed inspiration from Square’s Founder, McKelvey, when Amazon went face-to-face with Square in 2014. Square managed to out-beat Amazon, despite the fact that company was much smaller, had less capital, and inferior talent. We have tweaked the original thesis of the innovation stack to better fit the points we are making.
From an investment perspective, there is evidence that this philosophy of a culmination stack has utility, and thereby can be applied to all organisations. We believe, those organisations that follow the philosophy can produce exponential growth.
- Culmination stack:
- Copying does not result in a transformational change. Often, those organisations that are innovative and disruptive create a new industry, or a product that previously was deemed as inconceivable. An example of this includes Tesla, in which reinvented the ideology of a car, through embracing a car as an AI machine, in comparison to simple hardware manufacturing.
- Small micro-changes compound over time, and thereby lead to a superior product. An example of this is through the digital streaming music industry, in which Spotify is the dominant player. Whilst there is an array of competitors within the streaming markets, Spotify is the market leader, and dominates a significant portion. We believe that this is due to the small, attention to detail, and overall micro-changes that have been solely focused on one product.
- Concentration over diversification of resources. Often, a viable reason as to why innovative start-ups succeed over large corporations when competing is due to: the sole concentration of resources and time on one venture, in comparison to spreading too thinly over a range of areas. One example, that leads us to this conclusion is Amazon Music. Amazon Music only have a 13% market share, in comparison to Spotify (31%), and Apple Music (15%). We believe that this is due to the total pivot away from Amazons traditional business model, thereby leading to inferior results.
The technology scene is specifically moving towards a more monopolistic, winner-takes-all-market. We believe that this can be predicted, and identified in advance. The slide shown, we believe, gives an indication and checklist for understanding these innovative investments.
- Examples of the culmination stack.
Spotify VS other competitors, such as Apple Music, Amazon Music and Deezer. The idea of the culmination stack is presented within the evident example of Spotify and competitors within the music streaming industry. In consideration of the fact that Spotify is/was a much smaller organisation, in comparison to incumbent players, such as Apple or Amazon, Spotify still managed to garner a much larger portion of the overall market share. This is because of the culmination stack, in which is an array of small details, changes and innovations in which thereby result in a superior product. We believe, at Darntons, that this philosophy of the culmination stack is of upmost utility, and explains clearly as to why certain small organisations manage to outcompete incumbent, larger players. From the consumers perspective, the use of small, micro-changes and innovations builds up (often even subconsciously), which therefore results in one product being used more frequently by consumers.
Another example of the culmination stack in play is through Palantir competing directly with Microsoft within the context of Skywise. Whilst Microsoft had the original contract with Boeing, for a platform analytics software in order to empower data to create insights, Palantir 2 years later managed to replace Microsoft as the dominant OS system for Skywise. As investors, this gives us another coherent example of Palantir incorporation of the culmination stack to product a net-good. The fact that Palantir is solely focused on becoming the OS for the modern enterprise, indicates to us how they have the ability to outcompete organisations such as Microsoft, because of the fact that all their resources are solely focused upon one area. This is in comparison to many big-technology players, who spread their focus across a range of topics, in which often produces mediocre results.
