Business Model Wins Empires; Demand Wins Over Supply In Digital and why Microsoft is ChatGPT’s Best Feature

The whole elemental pillars and anchors upon which Adam Smith postulated on the “invisible hand“, via the lens of industrial-age economics, cannot necessarily work optimally in modern digital economics. Yes, the old factors of production and comparative advantages of nations remain, but their impacts are not as catalytic as before; knowledge has since emerged as the most powerful factor of production, and a man or a woman with knowledge is a FACTOR. 

Industrial age business is about controlling supply to shape prices. Manufacturers work to provide supply, but dominance actually comes by owning supply through distribution. Dangote Group’s most important competitive weapon is that it controls more than 40% of all active trucks in Nigeria, in a nation, where goods are shipped via roads, with inadequate air, rail and waterways for distribution.

The implication is clear in industrial age business: winning in markets becomes managing and controlling distribution as most businesses are bounded and constrained by geography, creating advantages which are largely localized.

But today, the game has shifted from control of supply to control of demand for web-anchored consumer firms. And only companies with capabilities to control demand are going to win big. If you check, most of the greatest internet companies are simply controlling demand, and that means controlling how supplies reach users and consumers. 

It comes down to aggregation: if the suppliers of local news are many, the challenge moves from the scarcity of the news to sorting out the supplier that adds value, since no person can technically visit all the individual websites before arriving at the most valuable one. Welcome Google which now becomes a gatekeeper, helping to make sense of the whole thing by guiding users to the right contents once they search. This is an evolution, shifting power from the old suppliers to a new set of entities which control access to demand.

Yes, the old companies which used to control distribution lose power [Google decides what content it shows users based on its algorithm]. Magically within the relationships, aggregators like Google and Facebook which make the unbounded supply manageable become the kingmakers. In the process, Google becomes more important to users than the newspapers (the suppliers of news) since Google helps to discover the papers. Because advertisers were all interested in access to demand (the users), the papers are cut-off (yes, disintermediated) as advertisers now spend more money advertising in Google.

If you plan to run an internet business, think about how you can control demand. You have already lost the power and capacity to control supply. Yes, the quantity you bring will not have material impact in the total pool in the market.

Nonetheless, you still need to find ways to create a separation. That could be by creating perception demand or simply by building massive data ecosystems which will give you access to be the digital kingmaker in a specialized sector since the ICT utilities like Google and Facebook, as I noted in a recent Harvard Business Review piece, have control of the broad internet.

ChatGPT, Microsoft As A feature

That brings me to OpenAI’s decision to use Microsoft as a distribution partner for its product by structuring a way to bake the AI into Microsoft products like Microsoft 365, Bing search and others. That distribution is going to become the main element of success for ChatGPT. Yes, while the creation of AI is an amazing engineering breakthrough in the consumer technology space, the ability to influence demand via the large Microsoft ecosystem is what will deliver economic value for OpenAI, the creator of ChatGPT.

Indeed, because of Microsoft, ChatGPT has a promise. If not, it has no chance. ChatGPT would have been a mere supply product in a digital that wins on influencing and controlling Demand. But with Microsoft, it has supply and an avenue to influence demand. When you combine both, you #transform markets.

For the past two decades, search engines have answered most users’ queries in the same way: with a ranked list of webpages. But Microsoft’s unveiling of its AI-powered Bing search engine this week suggests this period of stasis is over, tech critic Kevin Roose writes. Using natural language, a user can ask Bing to do tasks as diverse as planning a dinner party — it’ll serve up a menu with links to sources — to drafting a social media post or summarizing a financial report. “It’s an entirely new way of interacting with information on the internet,” Roose writes. (LinkedIn News)

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