I think Bill says something that is extremely important. The big theme that stands in the background of this discuss is the commoditization of the product/market in which you are competing. This race to the bottom is the bain of marketing professors’ existences all over the world. In the CPG world, you have a few big firms competing against each other and the idea in those industries is to orchestrate the macro momentum so all firms move in the other direction– towards product differentiation and competing on brand, not price. From a game theory perspective, it’s easy to see how in the online world, that sort of orchestration will never happen because the competitive landscape is so much broader. Basically, even if a few big firms try to compete on differentiations, a random 15 year old kid can come in and screw everything up.
Where my thoughts differ with Bill is that I place more value on the competitive advantages of scale and marketing/branding than he does.
The key question for anyone in business is, “Can someone do what you do for free?”. If the answer is “yes” you have a problem.