These success stories are technology companies, sure. But as we’ve seen, technological innovation alone is insufficient—even when its impact on the future is huge. Services like Craigslist, Wikipedia, and IMDb (the Internet Movie Database) were early, influential Internet innovators, but they still never became massively (financially) valuable on their own.

When Brian Chesky was pitching venture capitalists to invest in Airbnb, one of the people he consulted was the entrepreneur and investor Sam Altman, who later became the president of the Y Combinator start-up accelerator. Altman saw Chesky’s pitch deck and told him it was perfect, except that he needed to change the market-size slide from a modest $30 million to $30 billion. “Investors want B’s, baby,” Altman told Chesky. Of course, Altman wasn’t telling Chesky to lie; rather, he argued that if the Airbnb team truly believed in their own assumptions, $30 million was a gross underestimate, and they should use a number that was true to their convictions. As it turns out, Airbnb’s market was indeed closer to $30 billion.

High gross margins are a powerful growth factor because, as noted below, not all revenue is created equal. The key insight here is that even though gross margins matter a great deal to the seller, they are irrelevant to the buyer. How often do you consider the gross margin involved when you make a purchase? Would you ever choose Burger King over McDonald’s because Whoppers are lower margin than Big Macs? Typically, you focus solely on the cost to you, and the perceived benefits of the purchase. This means that it’s not necessarily any easier to sell a low-margin product than a high-margin product. If possible then, a company should design a high-gross-margin business model.

If a platform achieves scale and becomes the de facto standard for its industry, the network effects of compatibility and standards (combined with the ability to rapidly iterate and optimize the platform) create a significant and lasting competitive advantage that can be nearly unassailable. This dominance lets the market leader “tax” all the participants who want to use the platform, much as levies were imposed in the bygone Republic of Venice. For example, the iTunes store takes a 30 percent share of the proceeds whenever a song, a movie, a book, or an app is sold on that platform. These platform revenues tend to have very high gross margins, which generate cash that can be plowed back into making the platform even better. Amazon’s merchant platform, Facebook’s social graph, and, of course, Apple’s iOS ecosystem are great examples of the power of platforms.

[...] Broadcast television succeeded by providing the same thing to all its viewers—a model driven by the technological innovation of broadcasting content via wireless signals and later coaxial cable. Netflix succeeds by providing a carefully personalized experience to each of its many viewers, giving it a huge advantage over its traditional television competitors. Moreover, Netflix produces exactly what it knows its customers want based on their past viewing habits, eliminating the waste of all those pilots, and only loses customers when they make a proactive decision to cancel their subscription. The more a person uses Netflix, the better Netflix gets at providing exactly what that person wants. And increasingly, what people want is the original content that is exclusive to Netflix. The legendary screenwriter William Goldman famously wrote of Hollywood, “Nobody knows anything.” To which Reed Hastings replies, “Netflix does.” And all this came about because Hastings had the insight and persistence to wait nearly a decade for Moore’s Law to turn his long-term vision from an impossible pipe dream into one of the most successful media companies in history.

As we’ve already seen, most great ideas look dumb at first. Being contrarian doesn’t mean that dumb people disagree with you; it means that smart people disagree with you! Remember what happened when Brian Chesky, Joe Gebbia, and Nathan Blecharcyzk tried to pitch Airbnb? Investors like Paul Graham literally couldn’t imagine why people would ever use the service. This doesn’t happen because investors are dumb; most venture capitalists and angel investors are smart, and most smart, successful people would probably agree that investing in proven ideas is better than investing in unproven ones.

On the infrastructure side, Amazon has deftly shifted from minimizing infrastructure spending, as it did during its early years by using techniques such as outsourcing logistics to book distributors like Ingram, to becoming one of the world’s great infrastructure companies. Amazon is so good at infrastructure that its fastest-growing and most profitable business (AWS) is all about allowing other companies to leverage Amazon’s computing infrastructure. Amazon also makes money by offering Fulfillment by Amazon to other merchants who envy its mastery of logistics, which ought to strike fear into the hearts of frenemies like UPS and FedEx. In addition to its eighty-six gigantic fulfillment centers, Amazon also has at least fifty-eight Prime Now hubs in major markets, allowing it to beat UPS and FedEx on performance by offering same-day delivery of purchases in less than two hours. Amazon has also built out “sortation” centers that let it beat UPS and FedEx on price by shipping small packages via the United States Postal Service for about $1 rather than paying FedEx or UPS around $4.50.