TechExec 3: Winner Takes All, Regret Minimization Framework, and the Resurgence of Edge Computing

(Total read time: 7 minutes)

Hey there,

Welcome to the 3rd edition of TechExec - the newsletter that turbocharges your growth to become a Tech Executive!

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Now to the main content …

As promised, here are this week’s BLTs:

💼 B - a Business concept/theory/story

💝 L - a lifestyle advice

🤖 T - a Tech explainer

💼 B - Winner-Takes-All

Being the dominant force in a Winner-Takes-All market is the best thing that can happen to a business. But what exactly is a Winner-Takes-All market? And if you are in one, what does it mean for incumbents and entrants? There is a lot to unpack here.

A Winner-Takes-All market is characterized by two features: network effects and high switching costs.

Network effects occur when the value of a product or service increases as more people use it. This creates a self-reinforcing cycle where the dominant player becomes even more dominant as more people join the network. For example, social media platforms like Facebook and Twitter have strong network effects. Switching costs are the costs that a consumer incurs when they switch from one product or service to another. These costs can be financial, such as the cost of buying a new product, or psychological, such as the discomfort of learning a new system.

Now, if you are in a market with strong network effects, your business strategy depends on your stature in the market. If you are an incumbent, you can try increasing the switching cost by cross-selling (e.g. Salesforce CRM —> Slack), bundling (MS Office suite), locking in long term contracts by providing duration discounts, etc. All that will cement your position and create barriers so tall that newcomers will avoid the market. If you are the newcomer, you will have to put all your energy into lowering the switching costs. Common strategies include offering free trials, providing easy migration, and eating up some of the costs when customers break up with the incumbent. As you see, it’s not going to be easy!

Some people think that first-mover advantages are critical for Winner-Takes-All. But that’s just false. Let’s say company X is first to market with strong network effects and captures a significant majority in a short time. But when company Y launches a far better product and the switching costs are low, customers will jump ship to the better product. Similar arguments can be made for first movers in a market with high switching costs but no network effects. Thus, being first in the market doesn’t guarantee long-term success, as the market is not Winner-Takes-All.

💝 L - Regret Minimization Framework

The Regret Minimization Framework is a powerful tool that can help individuals make better decisions in their personal and professional lives. It is a concept that was popularized by Amazon founder Jeff Bezos, who used this framework to make one of the most important decisions of his life: leaving his well-paying job on Wall Street to start a new venture called Amazon.

The Regret Minimization Framework essentially asks individuals to think about the long-term consequences of their decisions and weigh them against the potential risks and rewards. By doing so, they can minimize the chances of regretting their decisions later in life.

The framework can be applied to various aspects of life, including career choices, relationships, and financial decisions. It involves asking oneself questions such as "Will I regret not taking this opportunity?", "Will this decision lead to long-term fulfillment and happiness?", and "What is the worst-case scenario, and can I live with it?" If the answers to all variants of the above questions come out to be YES, you've got to take the plunge!

🤖 T - The Resurgence of Edge Computing

Every digital transformation project in the last couple of decades began with a migration to the cloud. But Edge Computing is not dead and, in fact, is making a comeback.

What exactly is Edge Computing, and how is it beating the cloud at its own game? Let’s take a look.

Because of their scale, cloud solutions like AWS and Azure may provide services at incredibly low prices, making private data servers unattractive. However, there are numerous applications where cloud technologies fall short of our expectations. Edge computing, in particular, may be quite beneficial when we need to handle a huge volume of data (bandwidth issue) in a short period of time (latency issue). Some of the most important applications include autonomous vehicles, factory/warehouse robots, and traffic management systems. Another important reason to avoid the cloud for autonomous or connected vehicles is the requirement for permanent connectivity, which is difficult to guarantee. Not to mention compliance issues, such as when information must remain inside a given country or region, e.g., GDPR. Because of the increased demand for high resolution and low latency renderings, edge devices may shine in the gaming world too.

The journey to widespread edge computing deployment is not without challenges. What people want is performance of the highest order in the smallest form factor—a technological challenge. Edge computing is still in the early stages of the S-curve, where the current offerings are not yet good enough to rely on exclusively. Slower early adoption leads to slower technological maturation. And just like with any electronic component, edge computing is plagued by supply chain issues and electronic waste. Because training and operating AI models are also associated with high power consumption, which can worsen global climate change, deploying billions of these devices at the edge must be carefully considered.

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Gaurav