Ask HN: How are monopolies lost?

By a new technology that changes the nature of the value proposition, for customers.

Warren Buffett seeks monopolies (like Coke). He avoids high technology because of the uncertainty of technology revolutions (they can still happen but less often; and even less likely to alter the nature of the value proposition - though note that coke, chocolate and chewing gum were new technologies at one time...).

- Schumpeter's theory of "creative destructionism"[1] shows how innovations can make monopolies irrelevant.

- Clayton Christiansen's "disruptive innovation"[2] is similar. He tracks the disk drive industry, and notes that incumbents retain their leadership through technology changes - unless they change the nature of the value proposition for customers. ie. no longer more of the same, but different tradeoffs. More precisely: a change in the ranking of benefits in the customer value proposition. e.g. Today's shift from HDD to SDD. [edit: he also predicted the 1.8 inch HDD to rise in a new market that valued its attribute ranking differently - pre-iPod]

- Geoffrey Moore's "Crossing the Chasm"[3] is a more concrete analysis about the adoption of innovations. He notes that once a leader is enshrined as the leader, the market actively works to support them, granting them leeway never given to the also-rans. He gives lots of reasons, but mainly it's mainly derived from observation.

This leadership has some of the qualities of a monopoly. It seems to be pretty hard to lose, except when the basis of it changes. i.e. when it "becomes irrelevant".

[1] http://en.wikipedia.org/wiki/Joseph_Schumpeter#Schumpeter_an...

[2] http://www.businessweek.com/chapter/christensen.htm

[3] http://www.parkerhill.com/Summary%20of%20Crossing%20the%20Ch...

Windows was/is a great product in many senses. Great is not a word with a single application to an OS.

Windows was great in that it allowed multiple hardware vendors to compete on hardware without having to also design their own OS. It was great in that it allowed multiple corporations to market the same platform. And as it grew, it was great in that it allowed developers to write an app once that ran nearly anywhere.

There's a lot more to "great", as applicable to an operating system, than even usability, stability, graphic design. A lot of times the things you value, as a developer, aren't what the general public does. You might want an OS that's very much like Linux but with a much better GUI. Most people just want their PC to cost $300 and run any program they buy or have bought in the past.

So Microsoft's OS was clearly great by far more people's definition of the word than Apple's, and it reaped the rewards.

"Windows was great in that it allowed multiple hardware vendors to compete on hardware..."

Well, that is the "commotitized the complements" part.

The other part of your argument is that it is/was good enough for most users.

But let me put the question this way: If had it been 3x more expensive than the Mac, would have it been successful?

If not, then there's a clear distinction between a great product and a great price.

Remember the 3 Ps (Price, Product, Promotion)? Product and price are different things, specially in the software market, where the price doesn't necessarily reflect the cost.

So if people would not buy a 3x more expensive Windows, great product it not the motive by which it was successful.

I think the most accurate explanation in this case is not that Windows was a great product, but as another commenter said, that it offered a better value proposition for the money invested - and Microsoft had not the better product value, but the better price proposition, so they won that equation:

MacOS had a product value of 10, and a price of 5, so the value proposition was 2.

Windows had a product value of 5, but a price of 1, so the value proposition was 5, for each dollar invested.

To the average user, if MacOS was a 10, then Windows was an 8. I won't argue that they were playing catchup, but it wasn't that far behind after 3.1.

How many monopolies were lost without government intervention? I wouldn't call Apple's OS a monopoly, and even if it were, it wasn't for 10 years since Windows overtook it in 1990.

I'm trying to think of genuine monopolies that faded away without intervention and am coming up blank.

Good question. I suppose you'd want to dig around dead technologies... perhaps someone had a monopoly in the wooden wagon spoke business or something like that, that simply ceased to matter as an industry.

western union?

Still the only way that millions of poor people working in rich countries have to send money home. If I recall correctly, at least.

I'm outsourcing to South America and I've been using PayPal.

There were a few other options, as I recall. A service called Payoneer, some others.

It used to be W.U. exclusively, but that's changed in the last ten years.

> I'm outsourcing to South America and I've been using PayPal.

Sure, but that's not the group of people I was talking about, who generally go into a physical office, cash in hand, and want to send it somewhere else where someone can go pick up cash. WU isn't a complete monopoly in terms of sending money, obviously, but they still have a big chunk of the market. Actual facts would help the conversation, though:-)

Western Union still has a huge presence in India..especially in southern parts..

I'm not sure if they qualified as monopolies per the true definition, but what about TWA and PanAm for international air travel during the regulated airfare days? They each had respective monopolies on huge numbers of routes on separate coasts.

Even if you give them monopoly, it was a shift in government policy (deregulation) that took it away.

Well, it's a hard question, because they won't easily come to mind - by definition. If you were 100 years old, this question might be easier.

- IBM had a monopoly on electronic computers (mainframes) for a long time. And, hey, it also had one on "IBM" PCs for a while there...

- Cray supercomputers - there's an excellent example

- The original Apple II computer was a monopoly for a while.

- DEC minicomputers

- SUN microsystem workstations

- Silicon Graphics workstations

- that guy who patented the "car", and everyone licensed it from him (and who Ford challenged and defeated). Although this was a government created monopoly (a patent), it wasn't lost through government intervention. Or is that just semantics.

- Ford mass-produced cars

- General Electric (do they even sell light bulbs anymore?)

Another difficulty with the question is how you define monopoly: "well if you lost it, it wasn't really a monopoly, was it?"

By bad dice luck usually, or by aunt Jane placing a hotel on Park Lane.

Stronger substitutes would appear to be a significant factor. For example, the erosion of IE’s dominance following the introduction of Firefox and others (although the barrier of IE being pre-loaded onto the majority of personal computers means this dominance will continue for some time). In this case not necessarily new tech, but better tech.

I don't think stronger substitutes (Job's better products) are the correct answer - and as you observed, FF has only scratched IE dominance, not eliminated it.

Better product certainlly have some relevancy, because improving IE (IE7/8) will make it good enough that most people will not need to change, but we will never really know how low IE6's marketshare could go if Microsoft had not improved it - maybe it would still be good enough for most users.

At least, Windows was good enough for most users, even with better alternatives along the history - Next, BeOS, OS/2...

And also, don't forget that Firefox has also been around for a long time now... and it still has only barely scratched that surface.

1. Production 2. Distribution 3. Consumption

I think monopoly arises when (2) is vendor locked.

stagnation and complacency.

Stagnation isn't a good argument if you take Coca-Cola into account.

I don't know if Coca-Cola is a monopoly because Pepsi is a close substitute, but they are a leader in market-share in most continents, and if stagnation is what causes the loss of market-share, they would have been gone long ago.

They're certainly neither a monopoly nor stagnant. They've pumped out innovative new products over the years (Diet Coke for instance) and continue to do so. They've been an innovator in marketing in their industry.

Even the New Coke fiasco was only a failure to understand what nobody really understood at the time, which is that people don't purchase a soft-drink based on taste. It seems obvious to us now, but who would have guessed it back then?

I meant their main product - Coke, which has stagnated as a product for as long as I have lived upon this earth, and yet it is the leader in market share.

But you are right that they have not stagnated on Coke's marketing, although those Santa Claus commercials have been pretty repetitive.

Well, it's not stagnant. The formula is (other than the change to HFCS perhaps) but the marketing, which is the true product, is not. What New Coke taught is that people aren't buying a drink for the flavor, they're buying the physical representation of good marketing and the positive emotions that come along with it. They've never stagnated in that aspect.

They've also innovated in logistics. You can get Coke in places where there's no running water.

They way I see it, Coke's goal is: 1) to make you want a Coke whenever you're thirsty (that's the marketing), and 2) to make it very easy for you to get that Coke (that's the supply chain/logistics part)

To go with the notion that a drink isn't purchased on its taste: Take note that Coke does taste different in certain countries, not the least of which because they often substitute sugars, particularly in Diet Coke. Also note that they even change the name of Diet Coke in many countries; a common one being Coke Light.

It's different because Coke is chemically addictive, albeit much less than the drugs we commonly think of as addictive.

Even though the caffeine is the same chemical in Coke or other drinks, when you become addicted you also feel a compulsion towards the other circumstances around your consumption, like the exact taste of the drink. It's similar to why people prefer particular brands of cigarettes or beer - the preference gets stronger over time as it's chemically reinforced.

Monopolies create power and with power comes corruption

and debacle...