🦄 vol. 30
senyo (guest) and claude chat about unbundling and weighing up redundancy
unbundling and the promise 🤞🏾
Imagine you’re an ambitious entrepreneur, looking for your next problem to solve. You’ve always been annoyed that you have to pay for DStv just to watch sport 🙄. Your idea? A dedicated streaming service just for sport. For your customers, this is great news; they don’t need to pay exorbitant prices just to watch the few things they are interested in. You can even take this further by having a product centred around specific sports. This is unbundling in action - taking a product that comes “batteries included” and offering one slice of it as a dedicated product.
Why is unbundling good? 🤤
Interestingly enough, unbundling provides benefits to both the business developing the product and for consumers.
Tunnel vision 🔭
If there is one thing all successful people will tell you, it’s that you should remain focused. Doubly true for companies bringing new products to life. In tech, we have this saying: “do one thing and do it well”. Unbundling enables companies to focus on becoming the best at the one thing they’re good at. By taking a thin slice of a traditionally bundled product, they’re able to allocate all their resources to it, ultimately improving the quality and user experience of that product. We’ve seen this occur at an exponential level, particularly in sectors like fintech. Customers can now pick and choose from best-in-class products and compose them into their ideal experience.
A kid in a candy store 🍭
As I alluded to in my intro, unbundling is great for customers because they have increased optionality. Instead of having to buy a product for only one piece of functionality, customers can choose the select products that meet their needs. Only care about movies and series? Get Netflix (or Hulu, HBO, Amazon Prime). Only want to watch sports? Get Dazn. Want a dedicated search engine just for flights? Use Skyscanner. And not only can it be more affordable, the products are often of a higher quality (focus is a beautiful thing 😉). Talk about a win-win situation.
And the promise? 🤔
It just made for a cool sounding title 🤷🏾♂️. But really, the promise is simple: customers get better products because companies can focus on doing their one thing well. It was even such a cool trend at a point in time, it got its own name: “The Great Unbundling”. Very buzzword-esque, I know but next time you buy a product for that “one thing”, you have it to thank 😉.
P.S: I’ve been waiting for my time to thank The Great Unbundling… so can someone please unbundle DStv? 🥺
the need for redundancy 👯♀️
I was recently listening to an episode of the “All In” podcast (it gets regular mentions in this newsletter) where the hosts were dissecting the potential knock-on effects of the ongoing war in Ukraine on the global supply chain. The take-homes were:
15% of the world's calories come from wheat, a third of that wheat comes from Russia/Ukraine and Russia has banned the export of wheat. Due to this ban, current supply in Russia is not being moved, and future supply is not being planted.
13% of the world’s fertiliser is supplied by Russia, but Russia has halted its exports. This has pushed fertiliser prices up to 5x in some places.
Russian gas accounts for about 40% of the EU's natural gas imports.
The wheat shortage and the price of growing crops are pushing food prices up globally, and could push hundreds of millions of people into famine. Global gas and oil prices are skyrocketing.
This is an example of system failure.
At a high level, a system is an organised collection of parts (or subsystems) that are highly integrated to accomplish an overall goal. The system has various inputs, which go through certain processes to produce certain outputs. Together, they accomplish the overall desired goal for the system.
Russia’s export of wheat, fertiliser and natural gas can be viewed as a (failing) subsystem of the global supply chain.
Systems fail all the time 😩
Some of you might remember…
The city of Cape Town went dark a couple weeks ago.
Meta and its family of apps (Facebook, Instagram and WhatsApp) went down for 5 hours last year.
When major systems stop working, it’s usually because a key part of the system, or a system it depends on has failed.
In the case of Cape Town’s power outage, an overhead power line failed.
When Meta went down, an engineer accidentally disconnected its service while running a routine data-centre maintenance task.
The remedy? 💉
The first line of defence should always be avoiding unnecessary complexity when possible (as we talked about in vol. 27). The less parts, the less things that can break.
But often this is not possible.
The next best thing? 🏃🏾💨
Avoiding single points of failure through redundancy.
A single point of failure is any non-redundant part of a system that, if dysfunctional, would cause the entire system to fail.Redundancy is the inclusion of extra components which are not strictly necessary to functioning, in case of failure of other components. For example:
From the perspective of your home or a restaurant, you could purchase an inverter or generator so that you have power in case the grid fails, or in the event of load shedding.
You could sign on to other social media platforms (Twitter or Signal) to be able to communicate even if Instagram goes down.
The above are examples of how systems that depend on Eskom or Meta can introduce redundancy to protect themselves from a failure of the systems that they depend on.
Russia, how did we get here? 😕
Back to the predicament in our introduction. We live in a world with globalised supply chains. As a business, you get better utilisation of resources by outsourcing systems that don’t need to be running full time for the production of your core product.
A modern farmer would not make their own fertiliser, instead there are centralised producers from where a farmer buys enough for a season.
Computer manufacturers outsource the production of their semiconductor chips, and buy to produce a batch of computers.
This means it takes less capital resources to operate, you don’t need to invest in building your own fertiliser plant, you don’t need your own semiconductor plant.
The more unprocessed the products, the more the supply thereof is tied to geography. Some resources such as plants only grow in certain climates, whilst some resources only exist in certain geographical locations. As a result of this uneven distribution, we find large shares of supply for specific resources coming from a relatively small set of countries specialising in those exports.
Russia, being a major global producer of wheat, fertiliser and also being a major energy dependency that the rest of the world relies on, makes it a non-redundant part of the global supply chain.
And now? 🔭
The knock on effects of the ongoing supply chain crisis are already in effect and looking dire. To future proof against such crises, I expect to see policies and CapEx decisions that are focused on the remedies.
Cutting out complexity: European countries will likely invest in becoming more energy independent.
Redundancy: Large corporations will probably place more emphasis on the vertical integration of their supply chains to introduce redundancy in their production processes.
senyo is reading this deep dive into ramp, one of the fastest growing startups of all time.
sash thinks google’s newly announced f1 sponsorship deal with mclaren is really cool
matt really enjoyed this piece by david perell