Another one of my half-baked book ideas is a book on this subject.
What do I mean by this? What I’m thinking about is: businesses that are built on, and depend on, another business to exist, and would not exist without that business.
The first time I started thinking about this was in the early days of widespread Internet adoption, and specifically in the context of eBay. There were several businesses that sprung up in the early days: escrow services, payment processors, and even places where you could take your stuff. In the days before digital cameras and fast Internet access being common, it was often easier to take your items to somebody’s storefront: they’d list the items for you on eBay, handle shipping and receive payment, and take a cut of your proceeds, as well as an upfront fee for the listing. (At least, I assume that was how it worked: I never actually used any of those services.)
Zynga is perhaps another good example of this, but with a twist. They were, at one point, massively tied to Facebook:
At one point during 2011, Zynga made up 19 percent of Facebook’s revenue, partly because of the special mutually beneficial relationship between the two companies.
But Facebook ended that “special relationship”, and Zynga’s pivoted towards mobile gaming. Though I’ve never used Facebook, I almost want to argue (based on what I’ve heard from others) that Zynga’s games were more “parasitic” than “symbiotic”, in the sense that they possibly did some damage to Facebook and drove people away.
Which raises the question: are app developers in a symbiotic economy? Arguably, they wouldn’t exist without the Google and Apple app stores, and it’s easy for a change in policy, or a change in operating system, to wipe out a specific app. At least with Android, you (theoretically) have the option to “sideload” your app. On the other hand, eliminating third-party apps would hurt the stores as much, or more, as it would hurt the developers.
I’m not sure what the conclusion, or overarching theme, of this book would be. Other than: if you’re going to put all your eggs in one basket (like Facebook) watch that basket. And have a Plan B. And a Plan C.
What brings this to mind? Two fairly recent articles:
1. There’s this device called “Kytch”. It is targeted at a highly specific market: McDonald’s franchises. The Kytch device sits inside the notoriously finicky and often broken McD’s soft-serve and milkshake machines, connects to WiFi, and provides enhanced diagnostic information on what exactly has gone wrong with the machine.
McD’s corporate is not entirely happy with this idea, though apparently lots of the franchises who have used Kytch like it.
It warned first that installing Kytch voided Taylor machines’ warranties—a familiar threat from corporations fighting right-to-repair battles with their customers and repairers. Then it went on to note that Kytch “allows complete access to all of the equipment’s controller and confidential data” (Taylor’s and McDonald’s data, not the restaurant owner’s), that it “creates a potential very serious safety risk for the crew or technician attempting to clean or repair the machine,” and that it could cause “serious human injury.” The email included a final warning in italics and bold: “McDonald’s strongly recommends that you remove the Kytch device from all machines and discontinue use.”
…
Another franchisee’s technician told me that, despite Kytch nearly doubling its prices over the past two years and adding a $250 activation fee, it still saves their owner “easily thousands of dollars a month.”
McD Truth confides that Kytch still rarely manages to prevent their ice cream machines from breaking. But before they used Kytch, their restaurants’ harried staff wouldn’t even notify them nine out of 10 times when the ice cream machine was down. Now, at the very least, they get an email alert with a diagnosis of the problem. “That is the luxury,” McD Truth writes. “Kytch is a very good device.”
2. Sports cards are big business. I think everyone knows this, even if you don’t follow sports or collect cards.
The big dog in the business is Professional Sports Authenticator. They do condition grading and authentication of cards.
PSA had grown to averaging more than 3 million graded cards per year and was the unquestioned gold standard for the majority of collectors. Having a card encased with a PSA grade, on the company’s 1-10 scale, is often an incredible multiplier for the value of an individual card. An ungraded card with a market value of, say, $25,000 in mint condition can get a 10 from PSA and vault as much as 10 times. It’s the hobby’s ultimate thumbs-up — or down.
Putting it into my own terms, it is kind of like having a history letter from Smith and Wesson: at the very least, having a letter will probably pay for itself if you ever go to sell your gun. If you hit the lottery – if you find out your gun was shipped to someone like Annie Oakley – your $300 gun might become a $50,000 gun.
(On a side note: $300 for a .22/32 Heavy Frame Target? This guy got a screaming deal, and it would have been one even if it wasn’t Annie Oakley’s gun.)
But I digress. As the big dog in grading and authentication, PSA was doing a land office business. Business, as a matter of fact, was too good:
PSA was receiving 500,000 cards every five days, which was more than the company took in every three months before the COVID-19 pandemic started. The number of packages received per month rose from under 18,000 this past November to nearly 30,000 in February, and it eventually caused the system to buckle. In its statement, PSA said the company had grown from 421 employees in January 2020 to 783 this March, still not nearly enough for the surge that has happened over the past 12 months.
So, effective March 30th, PSA suspended most of their grading services.
In the collecting world, it was the equivalent of the Postal Service announcing on Dec. 15 that demand was too high and the company couldn’t deal with all of its recent holiday package dropoffs.
Uh, didn’t the Post Office kind of do that this past Christmas? (Okay, not really, but it did seem like they were coming close.)
PSA is still going to process their backlog, and hopes to resume service by July 1st. And there are other authentication and grading services, but none with the level of acceptance and prestige that PSA has. And the people with cards sitting in backlog have issues, too:
Henry estimates he has well over $1 million in total value for the cards he has waiting at PSA. He wouldn’t have sold all of those cards right away and would have kept some for his collection. But because the market fluctuates, he figures he has lost $100,000 from his cards being held at PSA. Most of that comes from basketball cards, Zion Williamson and Ja Morant
Who?
cards in particular. Henry notes that Morant cards were initially hot but have since cooled, and he wouldn’t be able to sell the cards for nearly as much as he would have had he gotten them back sooner.
As interesting as I find this story, I have a lot of trouble shedding any tears for Ja Morant Guy.