In the Grip of the New Monopolists
online.wsj.com
online.wsj.com
Amazon became big by selling books. Did publishers really say, hey, let's sell to the biggest online book store only? Would it be any more inconvenient for buyers to buy from a different online book store just because it was not the biggest? I don't think so. There is no network effect, just plain old economies of scale and the power of brands.
Myspace was the biggest. Friendster was the biggest. Both in areas that clearly do benefit massively from network effects.
So, I agree with the author on some points, but I think he plays down the "being better" part a little too much and he ignores substitution effects.
"Internet industries develop pretty much like any other industry that depends on a network: A single firm can dominate the market if the product becomes more valuable to each user as the number of users rises. Such networks have a natural tendency to grow, and that growth leads to dominance."
and
"Still, in a land where at least two mega-colas and two brands of diaper can duke it out indefinitely, why are there so many single-firm information markets? The explanation would seem to lie in the famous American preference for convenience. With networks, size brings convenience."
Did you find any other explanation in the article?
Also, your latter quote seems to me to be about size & convenience, not networks. He's using "network" in the sense "on the internet", not in the sense of "network effects". My basic point is that the article has a lot of good things to say, and says relatively little about network effects. So if people read your comment first, they're not going to read the article because they can think "oh yeah network effects, been there done that"
The trouble is that monopolies are not good or bad per se. Google and Facebook are still mostly innovating and adding value. At some point the landscape starts to change, and that's when they get scared and start getting anti-competitive and the balances start to tip.
The tricky thing is determining when this is. Certainly the government is ill-equipped to figure it out, because it's all sound bites and popular opinion by an apathetic voter base. So the rationale for why a monopoly should be broken up gets sanded down to a slogan about monopolies being bad, and pretty soon politicians are jumping on the monopoly-busting bandwagon without any kind of legitimate rationale.
This is why, I really value the old-school intellectual movement that Chomsky represents of standing outside and speaking truth to power. Even if a lot of his analysis is flawed and ideas ultimately wrong, the honesty with which he pursues them is admirable and we need many more like him to keep America honest. The rich won't do it (as a group they are too fearful), the powerful won't do it, and government is certainly too awash in lobbyists and bureaucracy to have any hope.
The problem with these monopolies is the same as with others : they capture excess money, which hinders innovation in the long run.
Hint : I don't believe in the free-market la la land BS anyway.
Once upon a time, Altavista was The Search and MySpace was The Social Network.
It was illegal for some reason, you know.
> Once upon a time, Altavista was The Search and MySpace was The Social Network.
They never quite reached the monopoly level, though.
Secondly, it's kind of silly to think about web monopolies when users can freely change operators. Google, Facebook etc have to work hard to maintain their users.
Actually you're wrong; it was made illegal because most people in command back then thought that it made more sense. See http://en.wikipedia.org/wiki/Natural_monopoly.
Free-market religion is relatively new, and remains largely questionable.
There's nothing stopping another search engine from springing up (and they do, of course). There's nothing stopping search engine XYZ from topping Google except for the aggregate of our voluntary decisions. This is not a bad monopoly.
Now, whether search or social networks are high barrier of entry industries, is another question. (I tend to think so)
1. I was hoping for a real world example (if its possible then there should be many examples, right?). 2. You imply that the fruit shop owner has access to the most efficient supply chain of all the other potential, would be fruit merchants and thus the only way he can loose his primate is if he raises the prices too much. How about people who start competing for various reasons like: I don't like the guy, or I don't have a better idea for business, etc. 3. Defining monopoly too locally has its own problems: Grocery store has a monopoly over selling groceries on a block, if there are two groceries, we can say that each has a monopoly over their part of the block, etc. See that's not really a monopoly.
The point is that in free, easy to enter markets monopolies are impossible - by the virtue of free and easy to enter market. What monopoly really is - domination of a single entity over a regulated (possibly by the monopoly itself) and expensive to enter market. Examples: http://en.wikipedia.org/wiki/Monopoly#Examples_of_legal_.28a...
See no village fruit merchants there.
My definition: a firm is a monopoly in a market when it is the only firm trading in that market.
The grocery shops on two blocks: not really, their markets overlap.
To look for real examples, pick any country town with 1 petrol station, or 1 book store, or 1 supermarket, or 1 fruit shop. You're never going to get these mentioned in a Notable Monopolies list on wikipedia.
Amazon is waaaay from monopoly. It competes with eBay, specialty web stores,...
And also - entering the field of WEB commerce is not a hard to get into market per say. Getting into oil market or telco marker, even getting Wal-Mart out of the way - now these are some hard undertakings.
In a town with 1 fruit shop - you can always go to nearby town if you don't like your fruit merchant (out of spite for example). But when you arrive to these nearby towns - and everywhere there is basically the same fruit retailer, with the same problem that bothered you with the first one. That's when you encountered a true monopoly.
I'm from ex-socialist republic and mostly everything was monopolized (many things still are) by the government or government owned enterprises. If you're from US, you wouldn't have seen stuff like that since AFAIK you guys are really good at breaking stuff like that apart.
So while I admit that your reasoning is solid, I view the term "monopoly" as inherently bad, since lets face it most (even all?) businesses start squeezing their customers when they get the chance.
I'm from Australia, similar i suppose. Monopolies are generally bad, but as I said before, monopolies that result because a firm is super efficient and keeps prices low, and remains that way because it is afraid of potential competitors, well that monopoly is hard-earned. Although these so called monopolies are generally small. (being the only firm in a niche market).
Google's monopoly comes economies of scale and superior technology. No one is locked into the Google, you just prefer Google because it is superior.
Facebook's monopoly is network effect.
Amazon is something like traditional horizontal monopoly.
The only thing the companies have in common is that they're on the Internet. But the main conclusion is that Internet is where all future market dramas will be played out.
It's a shame since alternatives still look more evil.
As markets mature, the differentiation between competitors lessens. Does that mean that the competition will increase? In the case of Amazon or Google, it should. However, it's possible that Amazon or Google will gain governmental barriers to competitors (they're big enough to buy congressmen), or quasi-governmental barriers (a-la Paypal) or strong arm barriers (a-la Standard Oil). Let's hope that they don't gain those barriers.
Market dynamics can create an anti-competitive, bad-for-the-economy monopoly without gov't help. Your assertion assumes that there exists no economic barrier so large that it is irrational for a potential competitor to try to overcome it.
In fact, there are easy counter-examples: imagine a town's public water source dries up and the only well is owned by a purely rational/greedy party.
By this journalists' standards MySpace would have been a monopoly 5 years ago, but look at where that went.
(PS: news corp owns WSJ & MySpace)
Seriously? Twitter is one of the most plainly worthless websites every made and Facebook is a pure copycat of a copycat of a copycat.
I think we are fortunate that we have Google as one of the monopolies, as at the moment they seem to be willing to be vaguely non-evil, but have already drifted significantly from 'don't be evil'. As much as I like to rail against them, it could be worse.
Somebody needs to redesign the browser so that it becomes vendor agnostic. That is, if I'm doing a search, I shouldn't see a brand or care who is providing me the results. All I care about is the quality of the results. Same goes for reading articles and buying things. Take the branding out of the web, and you'll kill the monopolies. (Yes, it would wreak havoc on the entire internet business model, but I have the magic wand, and I'm prepared to use it)
Is there some reason we have to have brands? Can't all the things we do and places we go be put into a configuration file somewhere and managed automatically?
People use Google because it says "Google" on the page. People go to Facebook because their friends are there. None of the results they want -- search results or chatting-updating friends, has anything to do with the underlying companies involved, although it has everything to do with the network effect, as you point out.
To demonstrate, let's suppose all of my 300 friends all used different social networking software. If somebody kept a configuration file that allowed my new browser to access their information in real time and assimilate it for me in one corporate-free spot, I could still have the networking experience of being with my friends -- say picking out a new movie to rent -- without the branding having to be part of the networking effect.
I suspect very few people would use it, because I suspect that many people use a search engine because of the branding. It makes them feel comfortable and safe; they know that this search engine has given them good results in the past, and this makes them believe that this search engine will give them better results in the future.
In other words, this problem exists between keyboard and chair. It's not a technological problem: the technology exists right now to do exactly what you suggest. It's a psychological problem: people naturally trend toward the familiar, and that makes the familiar even more familiar.
Generic search engines were successful because they abstracted the list-based directories into generic searches. Users were more than willing to replace the many brands they used with a single brand that offered meta functionality.
I see no reason to think that we are finished abstracting. Some new service should come along and abstract away more huge parts of the internet and put it under one brand name. Users will still have their brand-loyalty, it'll just be to a conceptually larger service.
Or is there something about the current state of affairs that means it should remain fixed?
People rely on brands when they have a product whose quality is important to them, but is difficult to discern from casual inspection. So for example, the strongest brands tend to be in markets like soda, foods, and cigarettes, because you're putting this stuff in your body and yet you can't tell what went into it. Branded medicine can fetch prices several times higher than generics, despite being exactly the same stuff. Things like software - Microsoft and Google - have middle-ground brand power, where quality is important (but not all-important) and you have few indications for overall software quality at purchase time. Things like airlines have virtually no branding power, because the trip is over in 5 hours, you've gotten to your destination, and you quickly forget about just how unpleasant the flight over was.
Following this, there are two ways to cut brand power of entrenched competitor:
1.) Make consumers care less about product quality. Cunard and White Star were done in by the airline industry, because by cutting trip duration from 5 days to 5 hours, they made consumers ambivalent about trip quality.
2.) Give consumers better information about the actual quality of the product. Google destroyed branded directory sites like Yahoo because they showed everyone just how many websites the directories were missing, and let them evaluate for themselves the quality of the sites.
To achieve #2, you could build some software - either a browser plugin or a meta-search engine - that "rates" each result on an unbranded results page, saying "This is filled with adsense" or "this information is false" or "this was copied from here". If you could convince consumers to trust the ratings more than the original search, you'd break the brand power of the original search engine. However, that's probably at least as hard a problem, if not harder, than building the search engine itself.
FaceBook and other social networks become dominant because of network effects, not because of brands. They don't let you export your friends, so you become trapped there, without much value anywhere else. FriendFeed tried to break that cycle with their meta-social-network, but it didn't work, probably because they didn't add any value besides what the social network itself had. In cases where new software really is superior, I think it's possible to convince whole cliques to move over at once, though, and that can break the back of the entrenched competitor. I saw it happen with LiveJournal, and then again with MySpace.
The passive voice is especially obscuring here; I have no idea what you mean.
I only do about five things on the internet, although I "visit" many sites. Let's say those things are 1) read articles, 2) chat with friends, 3) search for media to consume, 4) get advice, and 5) tell people things I think are important.
So I make a black box with five buttons. Each button does one of the five functions in a completely brand-free manner. (Of course the box itself would have a brand)
Now I am doing all of the things I did before, and all without the concept of an internet "location" or the idea of a brand being associated with my natural activities. The system itself could keep track of available resources and adapt itself to translating those into the things I want.
Kind of like Ad-block on steroids.
This is all easily doable with current technology, btw. No magic required.
If Google couldn't show their ads on search result pages, they'd need to charge advertisers to prioritise certain search results in their feed.
If Facebook couldn't show ads on the sides of their pages, they'd have to start embedding marketing in your friends' actions - by emphasizing certain behaviours over others - for a fee.
I'm sure a bit of subtle manipulation already goes on, but I'll take branding and advertising any day rather than make that the ONLY option.
This questions is very odd. "Is there some reason we have to have brands?" is the same as asking "Is there some reason we need Nouns in english?"
Nouns/brands allow people to communicate effectively with one another... who they are going to be involved in... who to trust... who to avoid...
The opposite of having brands is... Foo-Roulette, where everything you do is met with guys randomly showing you their cocks.