Asymmetry in the modern economy
Chips
It might seem that artificial intelligence is all about algorithms and brilliant researchers. However, the bottlenecks in this industry—on which the whole world now depends-have turned out to be accelerators (chips for training models) and fine-lithography machines. Only a handful of companies design the former. The sole manufacturer of the latter is a company based in the Netherlands.
As demand outstrips supply, it is these companies that currently decide when and to whom to ship their products, and on what terms. Suppliers choose the buyer. The buyer, having no alternative, is forced to accept these terms.
It might seem that artificial intelligence is all about algorithms and brilliant researchers. However, the bottlenecks in this industry—on which the whole world now depends-have turned out to be accelerators (chips for training models) and fine-lithography machines. Only a handful of companies design the former. The sole manufacturer of the latter is a company based in the Netherlands.
As demand outstrips supply, it is these companies that currently decide when and to whom to ship their products, and on what terms. Suppliers choose the buyer. The buyer, having no alternative, is forced to accept these terms.
Electricity
It takes a couple of years to build a data centre, but companies have to wait years to be connected to the grid. You can have the money, the servers and a ready-made business model, yet still be unable to secure the megawatts you need. There is a shortage of transformers, the land near substations is already taken, and connecting to the grid requires complex approvals.
Consequently, access to electricity is becoming one of the prerequisites for launching a new project. Companies are looking for sites with existing infrastructure, reserving capacity in advance and entering into long-term contracts. And the key factor when choosing a site is no longer price, location or taxes, but access to electricity - the bottleneck on which the entire project depends.
Data
‘Whoever controls information controls the world’ - this saying is most often attributed to Nathan Rothschild. And today, the advantage goes to those who know how to collect, store and analyse data. A competitor may copy a website’s interface, replicate its functionality or offer a similar product. But they will not be able to replicate another company’s history of customer behaviour.
However, even those who do not produce anything can collect data. Major platforms such as Google, Amazon, Meta, the App Store and Booking store information on the behaviour, preferences, search queries and purchases of millions of users. Only a few dozen players have this kind of systematic access. For the rest, it is precisely access to such data that is becoming a scarce resource.
Admittedly, data has a shelf life. It remains useful as long as people’s behaviour remains stable. As the market changes, the history accumulated over the years turns into figures about people who are no longer there. But as long as the platforms are operational, they will continue to receive updated data.
Please note
Time and attention are limited resources. Digital companies compete not so much for the user as for a slice of their life. And the bottleneck here is not attention itself, but access to it. It is controlled by those who decide what a person will see first.
There are still 24 hours in a day. And the time a user spends online is shared amongst thousands of websites, videos, shops and advertising offers. A recommendation algorithm can send one piece of content to millions, whilst leaving another virtually unnoticed. A search engine can rank one website at the top, whilst burying another far below.
This creates a paradox: there is more and more content, yet the chances of being noticed are getting smaller. And it is precisely this scarcity that creates value. And it is the consumer who pays for it.
It takes a couple of years to build a data centre, but companies have to wait years to be connected to the grid. You can have the money, the servers and a ready-made business model, yet still be unable to secure the megawatts you need. There is a shortage of transformers, the land near substations is already taken, and connecting to the grid requires complex approvals.
Consequently, access to electricity is becoming one of the prerequisites for launching a new project. Companies are looking for sites with existing infrastructure, reserving capacity in advance and entering into long-term contracts. And the key factor when choosing a site is no longer price, location or taxes, but access to electricity - the bottleneck on which the entire project depends.
Data
‘Whoever controls information controls the world’ - this saying is most often attributed to Nathan Rothschild. And today, the advantage goes to those who know how to collect, store and analyse data. A competitor may copy a website’s interface, replicate its functionality or offer a similar product. But they will not be able to replicate another company’s history of customer behaviour.
However, even those who do not produce anything can collect data. Major platforms such as Google, Amazon, Meta, the App Store and Booking store information on the behaviour, preferences, search queries and purchases of millions of users. Only a few dozen players have this kind of systematic access. For the rest, it is precisely access to such data that is becoming a scarce resource.
Admittedly, data has a shelf life. It remains useful as long as people’s behaviour remains stable. As the market changes, the history accumulated over the years turns into figures about people who are no longer there. But as long as the platforms are operational, they will continue to receive updated data.
Please note
Time and attention are limited resources. Digital companies compete not so much for the user as for a slice of their life. And the bottleneck here is not attention itself, but access to it. It is controlled by those who decide what a person will see first.
There are still 24 hours in a day. And the time a user spends online is shared amongst thousands of websites, videos, shops and advertising offers. A recommendation algorithm can send one piece of content to millions, whilst leaving another virtually unnoticed. A search engine can rank one website at the top, whilst burying another far below.
This creates a paradox: there is more and more content, yet the chances of being noticed are getting smaller. And it is precisely this scarcity that creates value. And it is the consumer who pays for it.
How is it that a single manufacturer can hold an entire industry to ransom? And how is it that a supplier - far from being the first link in the chain - suddenly starts dictating terms? And why does a carrier suddenly have the right to decide whose cargo goes first?
It’s all because a share of the cost price does not equal the degree of influence. A component may account for 5 per cent of a product’s cost yet control 100 per cent of the ability to produce it. And it is not the one who does the most who makes the money, but the one who has positioned themselves at a bottleneck in the transaction or the value chain.
In today’s economy, there are more and more examples of this. Read about it in this article by Eifos Hub.
It’s all because a share of the cost price does not equal the degree of influence. A component may account for 5 per cent of a product’s cost yet control 100 per cent of the ability to produce it. And it is not the one who does the most who makes the money, but the one who has positioned themselves at a bottleneck in the transaction or the value chain.
In today’s economy, there are more and more examples of this. Read about it in this article by Eifos Hub.
Logistics
As long as there is sufficient transport, warehouse space and port capacity, carriers compete with one another, whilst the customer chooses the terms and price. However, the situation changes dramatically if any of these resources become scarce. Carriers are already having to make choices: whose cargo to send first, whose to leave until later, who to give warehouse space to, and whose container to hold back. The carrier transforms from a service provider into the entity that allocates access to the market. Its influence on the market is incomparable to its share of the goods’ price.
And the bottleneck here is not the transport itself, but the throughput capacity: how many ships will pass through the strait, how many containers the port will handle, and how many lorries will leave the warehouse. It cannot be expanded quickly, but it can be shut down in a single day.
A single mechanism
Five sectors - a single mechanism. Only the nature of the scarcity changes. It may be natural - land in the city centre or hours in a day. It may be technological, where only a few know how to produce something (chips and lithography machines). It may be regulatory - licences, frequencies, connection to the network. Or commercial: space in search results or on a feed is limited exactly to the extent decided by the owner.
The nature varies, but the logic is the same. Restricting supply changes more than just the price. It alters the behaviour of all market participants: some wait, some pay in advance, and some accept others’ terms.
What to do about it
Firstly: identify your 5 per cent - your bottleneck. This could be a component, a supplier or a channel that accounts for only a small proportion of the cost but has the potential to bring the entire process to a standstill. For an online shop, this might be a payment provider, a listing on a marketplace, or a sole supplier. It’s worth compiling this list before a crisis strikes, rather than during one.
Secondly: ask yourself what kind of scarcity you and your business can create. Unique customer data, an exclusive supplier, or a community that won’t defect to a competitor. These are all ways to stop competing on price.
Thirdly: remember that scarcity comes to an end. Physical scarcity disappears when new production capacity is built. Regulatory scarcity ends when the rules change. Platform scarcity ends when user habits change.
The most costly mistake is to build a business on someone else’s scarcity as if it were permanent.
Whoever controls the scarce resource dictates the rules. Eifos Hub helps clients and partners identify those very 5 per cent – the points of dependency – and restructure their operations so that a single ‘bottleneck’ cannot bring the business to a standstill.
As long as there is sufficient transport, warehouse space and port capacity, carriers compete with one another, whilst the customer chooses the terms and price. However, the situation changes dramatically if any of these resources become scarce. Carriers are already having to make choices: whose cargo to send first, whose to leave until later, who to give warehouse space to, and whose container to hold back. The carrier transforms from a service provider into the entity that allocates access to the market. Its influence on the market is incomparable to its share of the goods’ price.
And the bottleneck here is not the transport itself, but the throughput capacity: how many ships will pass through the strait, how many containers the port will handle, and how many lorries will leave the warehouse. It cannot be expanded quickly, but it can be shut down in a single day.
A single mechanism
Five sectors - a single mechanism. Only the nature of the scarcity changes. It may be natural - land in the city centre or hours in a day. It may be technological, where only a few know how to produce something (chips and lithography machines). It may be regulatory - licences, frequencies, connection to the network. Or commercial: space in search results or on a feed is limited exactly to the extent decided by the owner.
The nature varies, but the logic is the same. Restricting supply changes more than just the price. It alters the behaviour of all market participants: some wait, some pay in advance, and some accept others’ terms.
What to do about it
Firstly: identify your 5 per cent - your bottleneck. This could be a component, a supplier or a channel that accounts for only a small proportion of the cost but has the potential to bring the entire process to a standstill. For an online shop, this might be a payment provider, a listing on a marketplace, or a sole supplier. It’s worth compiling this list before a crisis strikes, rather than during one.
Secondly: ask yourself what kind of scarcity you and your business can create. Unique customer data, an exclusive supplier, or a community that won’t defect to a competitor. These are all ways to stop competing on price.
Thirdly: remember that scarcity comes to an end. Physical scarcity disappears when new production capacity is built. Regulatory scarcity ends when the rules change. Platform scarcity ends when user habits change.
The most costly mistake is to build a business on someone else’s scarcity as if it were permanent.
Whoever controls the scarce resource dictates the rules. Eifos Hub helps clients and partners identify those very 5 per cent – the points of dependency – and restructure their operations so that a single ‘bottleneck’ cannot bring the business to a standstill.
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