(2021-05-02) Torenberg The Death Of The Middle

Erik Torenberg: The Death of The Middle. The emergence of department stores opened up a vast array of choices for the everyday consumer.

these were all great businesses.

Until the internet and Amazon came along and reshaped the industry to fit a barbell distribution. (Average is Over)

Department stores got destroyed. Malls got destroyed. Anything that was in the middle got destroyed.

The middle has been hollowed out.

So why’s this happening?

One reason is the classic innovator’s dilemma. Executives at companies “stuck in the middle” are making so much money they don’t want to take risks, which keeps them optimizing for local maxima at the expense of something truly disruptive.

Another idea is that the internet is changing our preferences — we’re getting more interested in either exactly what we want, or whatever’s most frictionless. Aggregate or specialize

Alex Danco’s series on understanding abundance captures it best (Note: I quote him verbatim liberally throughout this piece

The decision function looks something like this:
If [I am on a street] and [find an espresso shop that’s exactly what I want]
then [Go there]
else [Go to Starbucks]

Lower switching costs, masked complexity, and cheaper options remove the friction from consumer deliberation, which leads to single-variable consumption decisions, thus creating bifurcated, compounding power law outcomes.

Nassim Taleb talks about this in The Black Swan, using the examples of Mediocristan & Extremistan.

The key lesson is that the magnitude of outliers in Extremistan is much larger than that of those in Mediocristan.

the middle no longer satiates our demands. Companies and their products must be so differentiated that no one else can copy them (the boutique coffee shop), or they must be “full stack” and 100% exactly what we want (Starbucks), as discussed above.

Build a “pointy business” that’s purely differentiated, or “no stack”. Or build a “utility business” that does all of the underlying work as a truly “full stack” company/product. Don’t get stuck in the middle.