Why Scale Matters

Jeff Jarvis says that scale doesn’t scale. Fred Wilson follows up by talking about the new scale. While I agree that new markets can be born out of aggregation, I disagree with the concept of scale not scaling.

The problem is one of, well, scale. Let’s say that I want to make a movie that will rival Star Wars in terms of special effects and will have a plot that will take the story all over the world. So I can look at the aggregated model to make that movie. I’ll put the word out on my site and, hopefully, people will contribute money and/or services. Granted, this process will take time as I’m not a movie insider and have no proven track record in terms of making movies. So, I now have to limit my ambition and make a short demo.

I do that and it’s good enough to convince some people but not good enough to convince enough people to raise the funds. Let’s assume, for argument’s sake that I manage to aggregate 10,000 people and they are all willing to chip in $100 towards making the giant movie. That’s really great, I now have a fund of $1 million. However, the ambitious project needs 10 times that. What do I do then?

In the scale world, one of the people who sees the demo is a development person for a major studio. They like the demo, believe that there’s an audience for the story and throw $10 million behind the project. Somehow, I manage to get this project done on that budget and have a completed movie. The next thing is marketing it… Generally it takes a lot of money to market but, there’s one thing: if you’re with a movie studio, it’s likely that the studio already has pre-established relationships with media and can get me interviews, which help promote the product. It’s also very possible, in these days of media consolidation, that the studio which sponsors my movie actually owns some other media and can use those for cross-promotional effort, therefore lowering the cost of marketing.

Granted, I used a movie as an example but what about retail. I want to get a product out. This means designing the product, putting it together, marketing it, and selling it. I could aggregate those functions (and in many cases, it is being done) but it depends on the market. For example, if I wanted to introduce a new computer, would I be more successful as an independent player starting from the ground up or as a player within an established organization (let’s say Dell or Apple, for example) which already has all the parts?

Going beyond computing, would I be more successful introducing a new cereal as an independent firm, aggregating relationships across several industries, or as someone working for a large scale player, which already has all the parts?

Telecommunication actually works within the model Jeff proposes but more because it is a single service/technology built on top of other tech (ie. the Internet infrastructure is enough to support it and has been built and VoIP can now ride as an extra on a multi-use network)

Labor may look like a perfect model for aggregation but the maintenance part and tracking needs to be emphasized here. Also to be taken into account is the level of experience of the laborers. For example, I can aggregate and offshore an IT project but I can’t ask the same people to do my taxes or build a car. Why? Because of a skill gap. Offshoring is interesting but, in every offshoring project I’ve heard of or have been involved in, one of the key success or failure factor has been skills and training… and on a small project, aggregation is more expensive than dedicated workers.

Politics could be a place where the model works but that one will depend on which country you are dealing with. A good example of the failure of an aggregate model was the French presidential election, where the left decided to present many candidates and many messages. The right, on the other hand, presented two large-scale choices: a center-right candidate, and an extreme right one. In an open primary model (where the top two candidates are the one to go on to the next round), the right defeated the left, leaving the main event as a choice between center-right and extreme right.

In the US, because of the way most primaries are set (on a per-party basis), aggregation doesn’t work as well as scale. The last presidential campaign showed two large scale organizations (Democrats vs. Republican) and a billion small scale groups that could aggregate (or not). 99+ percent of the votes went to the large scale organizations, which both offered a different “one-size-fits-all” message.

I believe there is some truth to the aggregation model for non-tangible assets industries. For example, in the digital assets world, aggregation makes sense. If your product has already been built and is only needing distribution, aggregation works (one of my concerns around the long tail is that it doesn’t seem to take into account the cost of production and efficiency of return on investment), then scale may not matter as much but, in a lot of case, scale can accelerate work because it does not require to take the extra step of actually generating and managing aggregated models. In a lot of way, scale is about pre-aggregate models you can just plug into.

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