This post is based on ideas from my new book Reshuffle.

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The story of the Library of Alexandria is often told as an example of ancient openness, a hub where the world's knowledge was collected and shared with scholars.

But the mechanics of its growth reveal something entirely different.

Every ship that entered Alexandria’s port was required to hand over any manuscripts on board. The library’s scribes copied them, and those copies stayed in Alexandria.

What appeared as openness was, in practice, a system designed to capture knowledge that leaked through trade and travel routes. The library’s power was based on its ability to intercept and absorb information that originated elsewhere.

Systems that appear open generate value not because they give away access,

but because they create opportunities for knowledge, practices, or code

to leak out of one setting and into another.

Take yoga’s journey from India to the West. In the West, yoga is packaged as a gift of openness - an ancient practice generously offered to anyone seeking balance and well-being. Studios frame it as a kind of cultural commons, open to all who wish to participate.

Yet what gave yoga its global economic power was not its openness but the leakage of specific practices out of their original religious and cultural context.

Breathing techniques, postures, even the Sanskrit names seeped into new domains, unbundled from their context, and rebundled into fitness routines, lifestyle brands, and billion-dollar studio chains.

The flows of knowledge were never fully controlled by their originators; they leaked, and others built systems to capture and commercialize them.

The organizations that thrive are those that stand at the points of leakage and have the capacity to capture, recombine, and scale what flows through.

Open source is not too different. It is often held up as the pinnacle of digital openness, where code is freely shared, modified, and redistributed.

Yet the firms that have extracted the greatest economic value are not the contributors but the cloud providers that take open-source tools, integrate them into large-scale infrastructure, and monetize them as proprietary services.

The openness of the community creates an environment where leaks of code and ideas are inevitable. The firms with the systems to absorb these leaks end up with the advantage.

Openness is a misdirection. What’s really at work is leakiness.

If openness provides the appearance, leakiness supplies the mechanism.

The reason openness has become such a powerful cultural ideal in business and technology is that it works as a social signal. Declaring yourself open attracts participation, lowers resistance from users and regulators, and reassures partners that they are entering a fair system.

But the real source of durable advantage lies in how systems capture what escapes through that openness.

Leakiness is a condition where information, behavior, and value generated in one setting escape their boundaries and are absorbed elsewhere, often without the original participant’s full knowledge or control.

What matters is not whether a system is nominally open or closed, but whether it has the absorptive capacity to catch and use what leaks.

Consider Facebook’s Login API. It was presented as a convenience for developers and users: one password, access everywhere. On the surface, this looked like openness. Yet the true advantage came from the way every login generated data about user behavior across the web. That information leaked into Facebook’s ad infrastructure, strengthening its targeting engine.

Apple’s privacy posture offers a different case. The company has built its reputation on being closed to outside surveillance. Still, it allows data flows that feed its own advertising system. The signal to users is closure, but the mechanism is selective leakiness.

Stripe offers yet another angle. It does not advertise itself as open or closed. Its position at the boundary of payments means that every transaction leaks economic context to Stripe on what is sold, when, and by whom. Stripe captures and integrates that information into a broader system of financial intelligence.

In each case, the signal of openness or closure matters less than the actual underlying game of leakiness. The real economic logic is not whether you open your system to others, but whether you stand at the junctions where activity produces spillovers, and whether you can absorb them.

Leakiness transforms externalities - unintended side effects of activity - into strategic resources.

Platforms and ecosystems - business models that dominate the internet today - are really not about being open and closed but about creating the conditions for value to leak out of one context and into another.

This shift reframes competitive advantage in the digital economy.

Firms that succeed are not those that are most transparent or most closed off, but those that can spot, engineer, and capture leaks from surrounding systems and redirect them into their own.

The ‘openness’ signal may win attention, but the ‘leakiness’ condition decides who captures the value.

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Why leakiness matters

Classical economics has long grappled with the problem of spillovers. Knowledge generated in one firm often escapes to others; ideas spread through labor mobility, reverse engineering, or casual observation. These spillovers were traditionally seen as externalities - valuable, but difficult to capture, and often wasted.

What digital technologies have done is change the character of those spillovers.

They have made them

Observable,

Weakly excludable, and

Rapidly absorbable.

Together, those three features explain why leakiness has become the engine of advantage in digital systems.

Observability

In the early industrial era, market activity was largely invisible till the railroad ticketing system came around. Suddenly, the flows of people and goods could be tracked, priced, and optimized, not just guessed at. The simple act of issuing tickets created a data trail.

Today, Stripe plays a similar role across internet activity. Every payment becomes an observable event.

Stripe might seem like a payments company but it’s really a financial intelligence layer for the internet. It captures patterns of activity - seasonality, demand cycles, geographic shifts - that would otherwise dissipate.

The observability of these traces is what makes leakiness possible. Without a trail, nothing leaks.

Weak excludability

Even when firms attempt to wall off their data, much of it slips out through other channels.

In economics, excludability refers to whether you can prevent others from using or benefiting from a good without your permission. A good is highly excludable if you can enforce property rights around it i.e. lock it behind a fence, put a password on it, or charge a fee for access. A good is non-excludable if, once it exists, others can use it whether you like it or not, for instance, clean air or a public broadcast.

Weak excludability is the gray zone in between. It describes situations where, in theory, property rights exist, but in practice they are hard to enforce or incomplete. Information and data are classic cases. You might own the copyright to a piece of text, but once it is posted online, it is difficult to stop it from being copied, scraped, repurposed, or used to train an LLM.

Apple’s App Tracking Transparency campaign was meant to shut down the use of device identifiers by advertisers. Yet within months, marketers had shifted to other methods, like probabilistic attribution and fingerprinting, that reconstructed user behavior from the fragments that still leaked.

Browser extensions that promise coupons or shopping help to online shoppers often end up capturing vast amounts of browsing data, and leak user data into external systems.

This incompleteness of property rights is what makes leakiness possible. If firms could perfectly exclude others from using or seeing the by-products of interactions, spillovers would remain locked down. But because excludability is weak, value escapes. The organizations best positioned to capture and absorb these leaks - whether through algorithms, networks, or institutional systems - are the ones that gain advantage.

So, weak excludability in the context of property rights means that rights may be formally defined but cannot be fully enforced.

The gap between formal ownership and practical control is where leakiness occurs, and where competitive advantage in digital systems often resides.

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Absorptive capacity

Absorptive capacity is the ability of a system to take what leaks in and turn it into a durable advantage.

During World War II, Allied intelligence would intercept radio chatter. On its own, the information was fragmented and noisy. But signals intelligence operations, from Bletchley Park to the U.S. Navy’s codebreaking units, had the organizational and computational capacity to absorb those leaks and transform them into actionable strategy.

Today, Tesla relies on its fleet of cars as an absorptive engine. Every driver correction, every braking event leaks back into the central system, strengthening the autopilot. Google’s ad system functions in much the same way: trillions of search queries become raw material for auctions that match advertisers and consumers with uncanny precision.

Observability and excludability set the conditions, but without absorptive capacity, the leaks would remain unusable.

Leakiness, then, is an economic condition that transforms incomplete property rights and observable spillovers into compounding strategic resources.

When information leaks, it flows to whoever has the absorptive capacity to catch it, structure it, and redeploy it.

This is why platforms orchestrate ecosystems, why AI systems accelerate so quickly off the back of publicly available information, and why digital moats are less about ownership than about position.

The most defensible firms are those that sit at the junctions of activity, watching what leaks through, and building the systems to turn those leaks into leverage.

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How leakiness transforms the rules of competition

Leakiness changes competition not through the ownership of assets but through the management of flows.

Its effects play out in three important ways:

The internalization of knowledge spillovers,

The creation of new control points, and

The destabilization of complements.

Each of these can be traced back to the way firms position themselves to absorb what escapes elsewhere.

Internalization of knowledge spillovers

In most markets, spillovers are considered a public good: valuable ideas and practices diffuse outward, often benefitting rivals as much as originators.

Digital ecosystems reverse this dynamic. Firms with absorptive capacity capture the by-products of others’ activity and fold them into their own systems.

On Amazon, sellers may think of themselves as independent businesses, but every product listing, pricing experiment, and fulfillment choice leaks into Amazon’s data infrastructure. The lessons of one seller are abstracted and applied across the entire marketplace, and in some cases, appropriated directly into Amazon’s private-label offerings.

The emergence of control points

In the industrial economy, control came from owning bottlenecks: railroads controlled track, oil companies controlled pipelines, and manufacturers controlled plants.

In the digital economy, control is exercised less through ownership and more through placement at leaky boundaries.

Stripe does not own merchants, banks, or consumers, but by handling the flows of payments, it positions itself where valuable data leaks from one domain to another. That boundary becomes a point of leverage.

Similarly, Facebook did not need to own the web to control how people moved across it. The Login API gave it a seat at the junction where users flowed between sites without changing identity, turning an apparent convenience into a strategic chokepoint.

These control points are difficult to see from the outside because they rely on leakiness rather than control.

Destabilization of complements

Platforms often encourage complements to flourish - developers building apps, sellers stocking shelves, curators creating playlists - because they make the ecosystem more attractive.

But complements cannot prevent the leakage of their contributions into the platform itself.

Spotify’s rise illustrates the pattern. Independent curators built followings and added value through their taste. But every skip, like, and playlist addition leaked into Spotify’s algorithms, which absorbed and automated the work of curation. In many ways, Spotify has today captured playlists as a mechanism to redirect attention rather than as a way for users to curate.

Over time, the complements were commoditized. Their insights were captured, abstracted, and built into the system, leaving them with little bargaining power.

The same story plays out in most ecosystems: complements thrive only so long as their activity continues to leak into the platform’s advantage.

Together, these outcomes explain why leakiness compounds power. Firms that capture spillovers strengthen themselves with every new participant. Firms that sit at leaky boundaries convert other people’s activity into control. And firms that absorb the contributions of complements eventually destabilize the very ecosystem they cultivated.

Competitive advantage in this environment is not about scaling production or locking down assets. It is about ensuring that what leaks flows in your direction

This post is based on ideas from my new book Reshuffle, now available in Hardcover, Paperback, Audio, and Kindle formats.

This post is based on ideas from my new book Reshuffle, now available in Hardcover, Paperback, Audio, and Kindle formats.

Get the book

Leakiness and power

Leakiness can reshape entire markets, confound regulators, and shift the balance of power in ways that few participants anticipate.

For one, leakiness accelerates concentration. Once a firm has positioned itself at a leaky boundary and built the capacity to absorb what flows through, each new participant strengthens the system.

Regulation often misfires in this context. Policymakers are drawn to the visible signal of openness. They debate whether platforms should be more transparent, more interoperable, more open to competition. They talk about data residency and algorithm auditability.

But the real lever of power is not openness; it is leakiness.

Firms can appear open or closed depending on the audience they are addressing, while ensuring that the leaks flow inward. Apple’s privacy positioning is the clearest example: the signal is closure, but the structure is selective permeability. By focusing on the posture, regulators miss the logic that creates defensibility.

Leakiness distorts the relationship between contributors and orchestrators. Developers who contribute to open-source projects believe they are enriching a commons; in reality, much of their work leaks into corporate systems that monetize it at scale. Cultural practices such as yoga migrate across contexts in much the same way: they appear to be shared openly, but the long-term value accrues to those who build systems that capture what leaks and package it for new audiences.

These dynamics create a strategic paradox. Firms must leak enough to attract users, partners, and complements, but they must capture enough to sustain advantage. Too much closure and the system withers; too much openness and the system diffuses without defensibility. The art of digital strategy lies in managing this tension—engineering just enough permeability to generate activity, while ensuring that the flows of data and behavior leak in the right direction.

Leakiness, in the end, is an outcome of observability, incomplete property rights, and the capacity of systems to absorb what leaks. It explains why platforms orchestrate ecosystems and why moats today are built less by what you own and more by what leaks toward you.

That is the real source of digital power, and it is the reason the firms that appear most open often end up the most entrenched.