TL;DR
The 'stack fallacy' is the mistaken belief that building the layer above your company's core technology is trivial. The piece argues many big vendors fail when they move up the stack because they underestimate the difference between technical capability and deep customer knowledge.
What happened
Anshu Sharma outlines a recurring error in tech strategy he calls the 'stack fallacy' — the assumption that because a firm controls one layer of a technology stack, it can easily create the layer above. He points to multiple historical examples where incumbent engineering strength did not translate into success in adjacent markets: database vendors assuming enterprise apps are simple to build, virtualization players confronting cloud providers, and hardware-focused firms struggling to deliver consumer apps. The article contrasts successes building downward in the stack — where a company understands its own needs as a customer — with the difficulty of guessing what end users want at higher layers. Hiring or acquiring talent helps but cannot fully substitute for deep market and product understanding. The author concludes that knowing what to build often matters far more than knowing how to build it.
Why it matters
- Misjudging adjacent markets can lead established companies to invest heavily and still fail to gain market share.
- Technical expertise in a lower layer does not guarantee insight into customer needs at higher layers.
- Strategy that ignores product-market fit risks wasting resources on problems that are technically solvable but commercially weak.
- Understanding whether to move up or down the stack affects acquisition, hiring and R&D decisions.
Key facts
- Stack fallacy is defined as the mistaken belief that building the layer above your competency is trivial.
- Database companies often assume SaaS apps are 'just a database' and can therefore be built easily.
- Virtualization firms struggled to challenge cloud providers despite their core VM technology being used by those clouds.
- Oracle tried to enter enterprise apps (ERP/CRM) and later bought firms such as PeopleSoft and Siebel to expand in that space.
- Apple has had relative success integrating downward (chips, languages) but has found it harder to compete on some consumer apps.
- IBM underestimated the software layer on top of its PC hardware and allowed Microsoft to dominate operating systems.
- The author argues it is often easier to innovate downward because companies are natural customers of lower layers and better understand those needs.
What to watch next
- Whether ingredient- or lower-layer vendors continue to attempt building higher-layer consumer or enterprise apps — not confirmed in the source
- If more companies choose to acquire capabilities rather than develop them internally when attempting to move up the stack — not confirmed in the source
Quick glossary
- Stack fallacy: The mistaken belief that building the layer directly above your company's core technology is easy because you understand the underlying components.
- Vertical integration: A strategy where a company expands its control over multiple layers of the production or delivery chain, from components to end products.
- SaaS (Software as a Service): A software distribution model where applications are hosted by a provider and made available to customers over the internet.
- IaaS (Infrastructure as a Service): A form of cloud computing that provides virtualized computing resources over the internet, such as virtual machines and storage.
- Product management: The discipline of deciding what to build, for whom, and why, balancing technical feasibility with customer needs and business objectives.
Reader FAQ
What is the stack fallacy?
It’s the belief that because a company masters one layer of a technology stack, building the next layer up will be simple.
Why do companies fall for it?
The article attributes it to familiarity bias — teams overvalue what they know and underestimate the need for deep customer understanding at higher layers.
Can companies overcome the stack fallacy?
The source says hiring or acquisitions can help, and firms sometimes buy their way into higher layers, but acquiring true product-market insight is difficult.
Is it easier to innovate up or down the stack?
According to the article, innovating downward is often easier because firms better understand lower-layer needs as customers themselves.
Stack fallacy has caused many companies to attempt to capture new markets and fail spectacularly. When you see a database company thinking apps are easy, or a VM company thinking big data is…
Sources
- Why Big Companies Keep Failing: The Stack Fallacy (2016)
- The stack fallacy nonsense
- Why Big Companies Keep Failing: The Stack Fallacy
Related posts
- Claude Opus 4.5 Delivers an Unusually Capable AI Coding Agent
- Power bank feature creep is accelerating: docks, modules and rising costs
- Threads is testing in-message games with a prototype basketball feature