The video explains how modern monopolies are built on "platforms" and "network effects," contrasting them with older, outdated industrial monopolies, and outlines the key elements for building a successful platform business.
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so you want to be a modern day monopoly
man after all why wouldn't you
modern day monopolies have so much power
that they're basically the equivalent to
kings and queens
they have all the money influence and
control the revenue numbers exceed many
nation states around the world
and they don't have to answer to anyone
not even congress
yes or no answer do you believe that the
chinese government steals technology
from u.s companies and i'm saying i know
of no case
on hours where it occurred uh congressman
congressman
um i have no first-hand knowledge of uh any
any
information stolen from google that's
the thing i've read reports
of uh and but don't have uh personal
experience with
monopolists are everything people
fantasize about being a rich entrepreneur
entrepreneur
but on crack they're the true puppet masters
masters
so monopolist here we come your first
instinct is to model the old robber
barons of the past like rockefeller and carnegie
carnegie
their approach was simple start a linear
business where resources go
in products come out and then you buy up
the entire supply chain for that product
all the different parts to how oil was
made to all the different parts to how
oil was transported
or in other words they created a
monopoly by buying up everything in an industry
industry
the problem with this traditional route
is that it's outdated the public despise
your guts they had to do business with
you not because you were the best choice
but because you were the only choice
which led to a lot of resentment
and thanks to anti-trust loss even if
you can buy your way to a monopoly today
those leeches in government are
definitely gonna dismantle you
today's monopolists are much different
and get around all these pitfalls
instead of buying up more factories it's
all about acquiring more users
sure zuckerberg bezos pachai all get
their fair share of criticism these days
but it's not nearly as bad as the hatred
the public had towards the old robber barons
barons
and for the most part they're idolized
as the greatest entrepreneurs of their time
time
we still use their products not because
it's the only choice we have there are
plenty of youtube google facebook
competitors popping up
but because youtube google facebook
amazon twitter are still the best
products in their categories
we collectively create these monopolies
ourselves whereas the old monopolies
force themselves down the throats of the masses
masses
today's monopolies are enthusiastically
built by the masses from the bottom up
the old monopolies grew from the
economies of scale as they grew and
owned more of the means of production
their cost went down
the new monopolies however grow because
the more people that were on instagram
the better the experience is
with old monopolies consumers wanted
more competition but with new monopolies
consumers actually sometimes agree with rockefeller
rockefeller
that competition maybe is a sin just
like how all of us complain that there
are too many streaming services to pay for
for
and how wouldn't it be nice if we just
had a single streaming monopoly where
all our shows and movies are located
with one simple payment
so your soul screw the old monopolist
let's join the ranks of the new monopolist
monopolist
maybe you're saying to yourself well
okay then i'll just create a mobile app
a sas app a website or whatever
although these are information and
internet based businesses like facebook
google and amazon
that's where their similarities end
anyone today can hire some cheap
developers to clone your website or
mobile app and offer the exact same
product for less but you can't exactly
do that with a google or facebook and be
able to compete on the same level right away
away
in fact as the barrier for entry for
these pure software businesses keep
going down
pure software is slowly gonna keep
becoming more and more like modern day commodities
commodities
like selling wheat corn or barrels of
oil or in other words these linear and
commodity businesses have no
moat no competitive advantage to protect
you from the sin
of competition and because they have no
mo and you can't just simply buy
up the supply chain linear and commodity
businesses will never reach your
monopoly dreams
we need a business model with something
more a kind of moat that doesn't rely on
something somewhat random like a
patented scientific discovery yet
can't be easily copied by disgusting competitors
competitors
enter platforms platforms are the one
thing that all these new age monopolists
have in common
and the reason why these companies are
so powerful and untouchable is because
platforms offer something that can't be
easily replicated
networks amazon is a network that
connects buyers and sellers
youtube is a network that connects
viewers and creators uber is a network
that connects drivers and writers
networks of users are the one thing that
allows us to monopolize
amazon's value doesn't come from their
revolutionary technology that allows
people to shop online
millions of sites already do that
amazon's value comes from the fact that
it already has a network of millions of
buyers and sellers that already trust
the platform
facebook's value doesn't come from the
code that anyone can write by the way
that allows people to see other people's
posts on facebook and instagram
no their value comes from the fact that
practically everyone uses facebook and instagram
instagram
the mere fact that a lot of people you
know are on it makes facebook a lot more
valuable the users
are interconnected that is the whole
point college kids are online because
their friends are online and if one
domino goes the other dominoes go
amazon isn't the product facebook isn't
the product google isn't the product
uber isn't the products
the product is the other users
themselves this is called the network effects
effects
whereas more and more users interact
with each other the more value users get
in return compared to the raw code itself
itself
facebook wouldn't be very useful to us
if there's only 10 people on it but 2.6
billion active users per month all
interacting with each other
that's pretty valuable want to create an
instagram competitor well too bad
even if you clone the exact code they
used today and created a one-to-one copy
you still wouldn't be able to compete
because without the other users
why would people leave an established
network for one that has barely anyone
on it
most people want to stick to just one
platform for each specific need
making your monopoly very hard to topple
or in other words whereas the old
monopolies got their power from owning
the means of production
the new monopolies get their power from
owning the means of connection
platforms also have the benefit of not
having to produce anything
instead the users do all the producing
and the platform just sits back and
facilitates the trade
this allows expenses to not grow nearly
as fast as revenue does
which means you can scale almost
effortlessly compared to more plumbing businesses
businesses
what's better is that expenses start to
level off as you get bigger instead of
increasing linearly
controlling networks is the safest most
sustainable and most profitable
way to go or in other words platform
entrepreneurs are the real modern-day monopolists
monopolists
but don't take my word for it out of the
126 billion dollar private startups
around the world in 2015
also known as unicorn companies over
half of them were platforms
the next mark zuckerberg the next jeff
bezos isn't going to build just another
mobile app
just another sas app or a typical
physical product but a platform
and these are the secrets behind today's
most powerful monopolists and if you
stick to the end i'll share a future
platform that hasn't been created yet
but instead of in the billion dollar
range it's in the trillion dollar range
when these laws were written the
monopolists were men named rockefeller
and carnegie
their control the marketplace allowed
them to do whatever it took
to crush independent businesses and
expand their own power
the names have changed but the story is
the same
today the men are named zuckerberg cook
the chai and bezos
their control of the marketplace allows
them to do whatever it takes to
crush independent business and expand
their own power
at the end of the day all a platform is
as a network where producers and
consumers can meet and exchange value
this can be free videos in exchange for
ad revenue views and subscribers
or something more physical like money
and ratings for a place to stay on airbnb
airbnb
although platforms are pretty simple
building one and getting it off the
ground is much harder than a traditional
linear business where resources go in
and goods come out
building a linear business is pretty
easy there's already set frameworks you
can borrow from existing supply chains
you can use
but there's no clear blueprint for
building a platform because if there was
that particular platform would have
already been built so we gotta start
from scratch
the first step in your monopolistic
journey is picking the right market
which is also pretty tricky since
consumers like to stick to one or two
platforms for every niche
like how ride sharing only has uber and
lyft the money isn't finding a new niche
where there isn't a dominant platform
already or competing in a brand new
niche that a bunch of platforms are
fighting over like the early days of the
scooter wars the niche also has to be
big enough to support a network
the bigger the network the more swipes
can happen the more ride requests can
happen the more views can happen
or in other words the bigger the network
the more transactions can happen between
those producers and consumers
and thus the more billions you can make
once you find that goldilocks market
if our money and power comes from more
of those transactions happening that we
just talked about
let's go over that next
the most important question you have to
answer in your quest for your monopoly
platform is what is the core transaction
your dreams live and die by the core
transaction basically you have to ask
why are people using this platform
in tinder's case it's to hook up with
someone so tinder's core transaction is
a simple swipe between users
in youtube's case it's for people to
find entertainment so youtube's core
transaction is producers make videos for
consumers to consume
in exchange for views money subscribers
etc in fact when you clicked on this
video and when you smash the subscribe
button and like button because it really
helps out
we just completed youtube's core
transaction together give yourself a pat
on the back
if the platform is the modern day
factory the core transaction is the
assembly line what the starting point being
being
produces creating value or making it
available to be consumed on the platform
also known as inventory if producers
stop producing the rest of the assembly
line can't function
whether that be if creators stopped
making youtube videos people stopped
listening to real estate on airbnb
etc step number two in our assembly line
is a user connecting with another to
spark that exchange
in skype's case the producer initiates
the communication with another user that
consumes it
in youtube's case it's consumers that
spark the exchange when they click on a video
video
step number three is simple once
consumers find the right match they
consume the producer's inventory and
step number four consumers give value
back to the producer in exchange for
what they consumed
and this doesn't have to be just money
like we hinted that earlier it can be
reviews and ratings for platforms like
airbnb and uber
or other non-monetary value like
follower accounts likes comments making
it easier for the creator to reach more
viewers in the future in the case of the
youtube algorithm
while also discouraging them from
leaving the platform because look at all
the subscribers i have
i can't leave whatever platform you
think of it all boils down to these four
basic steps that act as the lifeblood
for your network
the more core transactions on youtube
means the more ad revenue among other
things for youtube
more core transactions on uber means
more ride commissions for uber
that's why it's so important to get each
step as efficient as possible
take tinder for example they understand
that the core transaction of dating was
a two-way street that both parties need
to be into each other before they start talking
talking
so tinder made that process as simple
and efficient as possible
before tinder a lot of dating sites made
you send a message to someone you were
interested in
this made men take the time to write
messages to women that he didn't even
know if they were interested in him
which resulted in a lot of
disappointments women on the other hand
ended up when a bunch of messages from
men most of whom she wasn't interested in
in
so tinder optimized that core
transaction to be just a simple swipe
if both parties swipe right on each
other then they would commit to talking
this allowed users to get through way
more core transactions and skyrocketed
them into the number one dating app with
over a billion dollars in revenue to
along with the assembly line of the core
transaction there are other things you
need to do to make sure your network is
healthy and thriving
the most important starting out is
audience building after all the entire
value of the network is that there's a
lot of people on it not enough people
ain't don't get swiped right don't get
booked and everything falls apart
so it's all about attracting the right
amount of both consumers and producers
to maintain
balance between supply and demand as the
network gets bigger it's going to get
harder and harder to connect the right
consumers with the right producers
this is where algorithms for matchmaking
come in uber automatically picks the
closest driver in the area youtube shows
videos that get the most engagement not
just whichever
get the most views and amazon looks at
what products people typically buy
together and get the right products in
front of the right customers eyes
another problem you run into once your
network gets big is preventing bad transactions
transactions
scammers spammers trolls etc this is
where the all too important rules and
standards come in
at this point you're basically acting as
the government of your platform finding
the right balance between safety and
freedom for both consumers and producers
and lastly another thing you can do to
keep your network thriving is offering
tools and services
this could be tools like filters on
instagram or the built-in video editor
on youtube
or it could be services like customer
support insurance for uber drivers and
airbnb hosts or moderators
basically they're nice to have that
add-on to the user's experience on the platform
platform [Music]
[Music]
platforms are by far one of the hardest
businesses to build today because you
run into the chicken and egg problem
networks are only as valuable as the
users that make it up but you have to
start out with zero users
but if you get all these moving parts
right you find the right market with
enough people
you design a great simple and efficient
core transaction that producers and
consumers can go through like tinder swiping
swiping
you make sure your platform is healthy
with audience building matchmaking rules
and standards tools and services
and you push through until you hit a
point called critical mass where there's
enough people to justify new people to
want to join
things will start to snowball you'll be
able to start monetizing either via
transaction fees
ads optional monthly subscriptions and
you'll go from an unprofitable platform startup
startup
to skyrocketing into the ranks of the
now you may be saying to yourself but
jake all this sounds great in theory but
these platforms seem so far and few between
between
are there even any markets left to build
a platform on well i'm glad you asked
because there are still many markets to platformize
platformize
i just made up loud word with the
hardest one being space but don't take
my word for it take it from amazon's
jeff bezos who also has his own space
company blue origin
here's him talking about what's
preventing us from colonizing space
there are going to be thousands of
future companies
doing this work but those companies
those entrepreneurial companies
cannot exist today it's impossible
and the reason is there's no infrastructure
infrastructure
in 1994 i started amazon all of the
heavy lifting infrastructure needed
for amazon to exist was already in place
we did not have to build a
transportation system to deliver packages
packages
we got to stand on top of that
infrastructure the same thing
with payment system did we have to
invent a payment system and roll that
out that would have been billions of
dollars in many decades
do we have to deploy computers no they
were already in most homes did we have
to build a telecom network that would
have been billions of dollars
infrastructure lets entrepreneurs do
amazing things
just like we lay the groundwork of the
internet for people to build the age of
information off of
we need to lay the groundwork the
platform for entrepreneurs to build up
in space
and as we've learned the ones who
control the means of connection in space
but aside from space as you expand your
platform monopoly here on earth
you're gonna have to expand into
international regions maybe open up
offices worldwide or at bare minimum
talk to people in different countries
over the phone
and you're inevitably going to run into
people who might not be fluent in english
english
and if you really want to wow them if
you really want to get them to like you
to do business with you
one of the most impactful things you can
do to get them to instantly perk up
is to speak their native tongue even
just learning a few phrases like thank
you in their language can get someone to
see you in a brighter light
this is coming from personal experience
and it doesn't have to be business
related either
it can be to help you win the love of
your life or just to keep your brain
flexible and agile
into my vedic with america where did you
learn to speak arabic magnets
luckily for you this is where babel
comes in and number one language
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messi
with university studies showing that
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entire semester of spanish in college
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which i can confirm babel is way funner
than traditional agonizing language courses
courses
and for a limited time babble is
offering you aspiring monopolist fifty
percent off six months so you can start
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bite size ten to fifteen minute chunks
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i'm well aware that i am but a mirror
producer on a platform so does that make
me a hypocrite
well yes it does so we're working on it
this video was based on the book modern
monopolies which is a very great read if
you want to learn more about this stuff
as you can see we're not at the typical
studio because we just got a new place
in newport beach
so i'm still working out the lighting
situation for the like talking head
setup but i didn't want to leave you
guys hanging so if you enjoyed this
video click the subscribe button for
more videos just like this every single
week on the most provocative and
interesting stuff in the world of business
business
you can follow me on instagram
jaketrend.io that is going to wrap it up
for this video you guys thank you so
much for watching as always
stay dangerous and i'll see you guys in
the next one [Music]
[Music] you
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