Hypercompetition. How Platforms Destroy Markets.

The first rule of platform business success: increase supply as far beyond the market’s ability to sustain the suppliers as possible. It doesn’t really matter how – and many tactics have been tried. It doesn’t matter what it costs either – the prize is worth it. And it seems structural, by which I mean that this is an imperative for platforms if they are to succeed, imposed on them by their mode of business rather than an option they can choose or reject.

It’s easy to look across many fields of endeavour and see this processes happening. There are more taxi drivers per customer than ever; more restaurants delivering for each eater; more brands and more retailers for each product, and for each buyer of a product; more writers for every reader of the news, etc.

This idea, I call ‘hypercompetion’.

Hypercompetition is far from a worked up and formal concept; it started as some observations that seemed to me to be connected to each other or related somehow, and has been forming gradually into a model. It’s an attempt to make sense of how some areas of our platform-mediated lives are evolving.

In music, streaming services have had a few years of fast growth in subscriber numbers and revenue, but faster growth in the number of artists active in the market. Music’s hypercompetition looks something like this:

Digital tools have made it quicker and cheaper to produce and distribute new tracks. Hobbyist and semi-professional music producers have moved to an assumption of distribution, rather than an assumption that they will negotiate with an intermediary. With a bigger market of music producers who have less of a focus on a return on their investment, more digital tools arrive making it even quicker and even cheaper to produce and distribute. Some producers have visible success without engaging with an old intermediary.

This phase in the process could be called a competitive acceleration perhaps, and as it took its course observers tended to describe music making as ‘democratised’, although many areas of the music market were already very democratic. Perversely the new mode seems to create more opportunities for those with private incomes and a capital cushion to fund their projects.

Whatever you call it, previous market barriers have been broken. And it could be argued this is good for creators and intermediaries – the intermediaries that used to do very little for their rents will struggle, and others will work harder to prove their worth. Creators too find themselves working harder, making and releasing more music, and logging in daily to social media and dashboards.

The next phase moves beyond normal competition. This is what I have started calling ‘hyercompetition’. One or more interventions bring about an influx of new participants in music production and distribution. These have included include software that effectively makes music for you; marketplaces for services that help put together releases; and quick, cheap, ’no questions asked’ distribution services. It’s very hard to say that the innovations and interventions are meeting a latent demand – they seem to create demand that would not otherwise have existed.

At this point one can see a few characteristic signs that the nature of competition has changed in three important ways.

First it is no longer reasonable for creators to expect any meaningful payment, or more than a token audience beyond their friendship circle. Second, intermediaries know that they need to charge for what they do, as there is no longer a reasonable expectation that revenue from their successes will pay for the failures. Third, withholding the music becomes meaningless to the consumer music services, so producers and intermediaries lose any value in exclusivity, or any negotiating or pricing power when selling to consumer services.

When withholding is meaningless, and when no reward can reasonably be expected for the inventory (rather than the services around its production and distribution), that seems to me to indicate the destruction of the market for recorded music.

With the recorded music market effectively dead it’s likely that consumer music services will increasingly see their ’suppliers’ – music producers and intermediaries – as customers. They are in a position to define entirely new categories of goods and services simply by changing the rules of visibility and success. They need to be careful; there are plenty of examples where consumer services, two sided markets, and platforms, have replaced high quality goods and sophisticated supply chains with aggregations of undifferentiated low quality goods.

There is of course a big impact on service providers to the markets that are being disrupted, whose customers previously were a smaller number of professional producers and intermediaries. As consumer services and intermediaries are selling services to producers, the old service providers end up with a massive increase in the number of potential customers; but challenged, on price and service and in the sophistication and competence of their customers. It is almost as though hypercompetion is recursively imported into each community it touches.

So here’s an attempt to summarise a few characteristics of hypercompetition:

1. Unreasonably high contention for success – not just 1:10, or 1:20 as in the old music industry. Now more like 1:100,000.
2. Close to cost-free and barrier-free entry to the market for a new participant; certainly no qualification or quality requirement.
3. Inversion of supplier/customer categories – suppliers become customers.
4. Intermediaries become service providers rather than sharing revenue/success.
5. Service providers import competition from their previous customers, the intermediaries and producers.

This is a small window into a very big and complex idea. I called it hypercompetition to capture the sense of a competition which is all against all, and in which what you win is simply the right to continue to compete.

Importantly, platforms seem to succeed to the extent they can generate hypercompetition. If you are a supplier, platforms are effectively casinos. In music you often see service providers advertising ‘keep 100% of your copyright’. It’s not valuable; it has become a lottery ticket.

What comes next after this kind of mass meltdown?

I have been interested in chess for a long time – not as a player, but as an observer. Cheap computers have been beating the best players for decades. It’s just as difficult to play as it ever was. There’s a small but lively market for learning aids of all kinds. Chess as a spectator sport continues to develop, and has generated the biggest aggregate prize fund of all e-sports due to the pandemic migration online. My guess is we like watching humans attempt very difficult things, so my long term bet on music is that it becomes more focused around human activity, and the value in the created audio object drains away over time.