It’s Not Only About Cash, It’s About Skills” Stephan

“IT’S NOT ONLY ABOUT CASH, IT’S ABOUT SKILLS”

As editor-in-chief of the trade magazine t3n, Stephan Dörner has been involved in the digital economy since its beginnings. In an interview with style in progress, he talks about platform economy, quasi-monopolists, and why digitisation remains the ultimate opportunity despite all its challenges. Interview: Martina Müllner-Seybold. Photo: t3n

As editor-in-chief of t3n, Stephan Dörner is something of a chronicler-in-chief of digitalisation. In a refreshing interview with style in progress, he explains why one should not chase ships that have already sailed.

The big ones win, the small ones die – is

this the new reality of e-commerce?

It’s a general trend that I see in the digital economy. In the long run, the big ones win. The decisive factor here is the network effect: the larger the network, the greater the benefits for all sides. Accordingly, this triggers a swift consolidation process, meaning that only one platform per area survives. This is, of course, problematic, because this one provider is no longer a market participant, but the market itself. He determines the conditions and exploits this position – as any retailer selling on Amazon will certainly confirm.

Our governments and legislature are idly standing by. The antitrust authority is eagerly concerned when Karstadt and Galeria Kaufhof merge, but does nothing to counter the concentration of market power at Amazon?

This is a fundamental problem of our current economic order and antitrust legislation. The platform economy doesn’t necessarily need takeovers to become a quasi-monopolist. Amazon has established its dominant position in Germany without any takeovers – but only then would antitrust law take effect. What the antitrust legislation has to offer, however, is the possibility of acting against the abuse of power – as has happened in the case of Google. Conversely, if there is only a quasi-monopoly that has arisen naturally in a certain area, there is no antitrust instrument available, because the cartel stems from a time in which something like software wasn’t relevant.

Is it possible to derive an analogy to retailing from this? Does the retail trade also need decision-makers who no longer come from a time when the new rules weren’t relevant yet?

I believe there are entrepreneurs who didn’t grow up with digitisation yet still understood its mechanisms and managed to transform companies. One example is Otto, a company that has established About You, a relatively strong e-commerce brand that appeals to a young target group. The counterexample is Neckermann.

Let’s talk about fairness in competition: a medium-sized e-commerce business with tax residence in Germany on one side, an international network of companies backed by plenty of investor money in a quasi-monopoly position on the other. Is it even possible to compensate these often insane competitive advantages? It’s David versus Goliath.

Those are two different dimensions. One is taxation. It is true that international corporations currently have room to manoeuvre in this respect. The EU is, however, already working on that. Apple, for example, has been ordered to make back payments. The second dimension is the question of capital. It’s indeed the case that – in continental Europe in general and, with some exceptions, also in the UK – much less capital is made available to conquer markets. The situation is different in the US. Nevertheless, there are players like Zalando who have very successfully established themselves in the market with financial backers from Germany and Sweden. This example and About You show that it isn’t merely a game of capital. One can buy market shares with capital, but that’s not the only success factor. Let’s stick with About You. Plenty of money was invested to build a strong brand. Of course, cash plays a part, but it’s also about skill. Positioning a brand appropriately is not a question that can be reduced to money alone.

So, what is the consequence for someone who doesn’t have millions of venture capital at disposal? Hands off e-commerce?

No company can ignore digitisation. Digitisation always offers opportunities too. One doesn’t necessarily have to set up one’s own shop. One can also earn money as an Amazon Marketplace retailer. Personally, I wouldn’t launch yet another e-commerce start-up today. The fruit no longer hangs as low as it did in the early days of digitisation. A large part of e-commerce growth over the next 10 to 15 years will be tapped by Amazon and the like.

The logical consequence would be to tackle these market conditions as a pack, not as a lone wolf. However, the fashion industry is driven by individualists who, no matter at what level of trade, have always liked to do their own thing. Is this maverick mentality the first thing that needs to be thrown overboard on the way to a digitised future? Are platforms like Farfetch simply the smarter solution?

Yes, I do believe that. These new alliances also exist in other industries. Ten years ago it would have been unthinkable for the big German automotive players to work together, but they do now. To be honest, I don’t know much about the fashion industry, but I firmly believe it would make sense to form alliances that may have been considered unusual in the past. I’m not talking about trying to build a joint platform to compete with Amazon or Zalando. That ship sailed a long time ago. Nevertheless, alliances can successfully prevent all the power being handed to existing platforms.

Farfetch is one such example. There are also other attempts in other price genres of fashion to bundle all e-commerce aspects that require too much investment for individual players. Even Zalando would rather be a platform than a retailer…

Sure, everybody wants to be a platform. That is the dream goal of every digital company, simply to skim off the margin and have as much power as Amazon. (laughs) For me as an outsider, it’s most amazing that there wasn’t an alliance of manufacturers 10 or 15 years ago. The major fashion manufacturers were obviously not strategically far-sighted enough to build this platform themselves. From their point of view, the best strategic option would have been to jointly establish a platform like Farfetch. That would have been the smart answer to digitisation!