Chenyi Shi

So your competitors, if they're functional equivalent, can also have switching costs.

Now, if you go down this logic line, it creates the possibility of companies having switching costs but no profits.

And the way it happens is if a competitor was able to build the same product, roughly the same product, and they fully realize this is the lifetime value of the customer, should I acquire them?

Then it's rational to invest up to all of those value in the acquisition phase, be it discounting, partner incentives, marketing campaigns, whatever it is.

It's rational to spend up to all of that lifetime value to try to win that customer.

And then what you end up with is companies with switching costs but no profits.

Oh, and I will add to that, that it's not a good to have.

If you understand power umbrella is bigger than what you currently offer and you ignore it, you actually are creating competitive openings for somebody else to take on.

Well, I'll throw something out.

It's tough because you tend to have survivorship bias.

You only remember those companies that made it.

Maybe another example is the credit card industry and how it evolved.

It started basically as branded charge cards for a particular retail store or a gas station, and then turned into Diners Club, which is a card for many restaurants.

And then very quickly, it turned into Universal Card.

It's a card for basically everything.

Yeah, Visa's 50% margin is astonishing.

I was thinking about this this morning, it's fun.

So I think it's both.

And the reason why it's both is because you can think of Nintendo as a platform that vertically integrated into the production side.

Basically, all the first-party content is a vertical integration, and that's why they would exhibit economic structure that you would typically find in producers, which is economies of scale.