

Exclusivity contracts are killing entrepenenurs - can we kill them? - smakz

Exclusivity contracts are killing the entrepreneurs in this country. My past two ventures have hit hard roadblocks due to entrenched players having exclusive access to provide goods and services to large companies.<p>Here are the kinds of exclusivity contracts I'm talking about (the examples I ran into deal with smaller players, but in spirit this is the kind of thing I'm talking about):<p>* AT&#38;T is the exclusive provider of iPhone. If you wanted to start a cellular network, you could not provide the phone that most people want.<p>* Ticketmaster is the 'exclusive' provider of tickets at all major venues. If you wanted to sell tickets, you couldn't at these places.<p>* Sony pays Konami to only publish a game (Metal Gear Solid 4) for their Playstation 3 platform.<p>* VISA and Mastercard pay stores to only provide their cards and exclude other cards.<p>* Google paying myspace to be the sole search provider for their web site (and MS doing the same with facebook).<p>In my perfect world, ALL of these contracts would be illegal because they artificially raise the barrier of entry for entrepreneurs like us. It is not the 'market' ie, customers deciding which service provider is the best and most innovative, it is the businesses themselves negotiating the best rate and putting smaller players out of the competition.<p>In my opinion, the above is no different then Standard Oil promising the rail road companies a paycheck each month for a discount on shipping costs (which is one of the main reasons they were identified as a monopoly that needed to be broken up). In fact, I don't think Standard Oil should of been broken up, they should of changed the laws so that it becomes easier for competitors to enter the market place (which they did as well - make rail road companies charge the same rates to everybody, etc.).<p>My question to hacker news - is there any basis to bringing up a case with the DoJ, name all the companies above in the suit, and get rid of these moronic 'exclusivity agreements' once and for all? Or does the company have to be an obvious monopoly (ala Standard Oil/Ticketmaster) and even then is the only recourse to break up the company (which is incredible stupid)?
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SwellJoe
There are also exclusive deals in our industry...and they've been aggressively
pursued by the second most popular product in the field--such that ~20% our
biggest potential customers probably _can't_ buy from us until their contract
ends, even if they wanted to. But, it's not something I would want to try to
solve with legislation. All contracts (exclusive or otherwise) have an end
date--your job as an entrepreneur is to recognize this, and be prepared to
wait it out, with other aspects of your business filling in the gaps.

In the case of tickets: Go after the smaller venues. Make people happier--
people _hate_ Ticket Master. Seriously, you don't get a universally accepted
moniker like "Ticket Bastard", if your customers are satisfied. The landscape
can change dramatically in two or three years as those exclusive contracts
start to fall off. If another ticket seller has built up the relationships
with the small acts and labels as they grew up, there could certainly be a
window in there. Proper business development in a field like that is far
harder than the technical side of things...and so I suspect what kills
alternatives is just that Ticket Master has mastered the business development
side of the equation. So, you'd have to master that, _plus_ provide better
customer service and more fair pricing, in order to beat them. The exclusive
contracts came later for Ticket Master--after they were already the far ahead
leader in the field.

In the case of video games...so what? How does that hurt anyone? There are
hundreds of new titles being released this year for PC, Wii, and X Box 360,
why would one (I guess really popular) title being exclusive to PS3 be all
that big of a deal? It's certainly no problem for game makers, who will have
better sales of their similar games on other platforms. And it'll probably
only marginally hurt MS and Nintendo (who also have exclusive games to make up
for it). And who says Konami wanted to invest the resources required to build
their game for the other platforms? Maybe it doesn't make business sense for
them to do so. Are you going to force Konami to build games for every game
console? Who determines what is a game console? Can I put up a website selling
Linux "consoles" and force Konami to port to Linux because I want to play cool
games on my Linux desktop machine?

VISA and Mastercard. So what? AmEx does it, too. It's a credit card. It's not
real money. Are you saying every company should have to extend credit to
everyone, as long as they have some card in their pocket? Diners Club?
Discover? Despite the fact that all cards have different contracts with
different terms, and different processing rates. Many businesses don't accept
AmEx, for example, because it is significantly more expensive to process. An
exclusive contract is merely another aspect of this competitive landscape--it
goes on far behind the scenes, of course, since consumers generally have no
idea how credit cards work or what it costs when they use a credit card, but
it's still just multiple companies trying to figure out how to one-up each
other in the market while still making money.

Websites...again, so what? There are billions of websites, and like over 9000
new ones going online every day. Exclusivity on one is not a big deal. And it
makes no sense for MySpace or Facebook to have multiple search providers...so
who're they hurting by entering an exclusive contract? Nobody. In a year,
maybe two, maybe three, you'll get another shot at that site. Contracts are
temporary, and tenuous, things.

Your perception of what is fair seems a bit off-kilter with a competitive
capitalist economy (which is _required_ for any of us to do the things we want
to do). Contracts, exclusive or otherwise, are fair play. If someone were
offering a better deal, in all of these cases, the next time the contract term
expired, things would change. There's nothing perpetual about any of the
situations you've mentioned, and nothing to prevent competition.

The things I have a problem with are much more difficult to deal with: power
companies have monopolies enforced by local governments, phone companies and
cable companies have monopolies or duopolies over the last mile for broadband,
broadcast television stations have practically permanent licenses to operate
on their frequencies based on 50+ year old deals (though this got shaken up by
the move to digital, and new ranges were opened up and auctioned off),
trucking companies have practically free roads while railroads have to build
their own (but, railroads have some grandfathered in land that they got for
free 100 years ago to even things out a little). If you want to talk anti-
competitive look to industries where the same major players have been in
control for 50, 100, or more years.

So, while I do think AT&T is a dangerous animal that has way too much control
over the government, and should not be trusted, it's not because they have an
exclusive deal with Apple. AT&T is dangerous and anti-competitive because they
have the government in their pocket, and they can pretty much do anything they
want. The last mile in many parts of the US is owned entirely by AT&T, and 90%
of independent ISPs have shut down because of this fact. A few cable operators
have strongholds, and are defending them reasonably well, and so there is the
appearance of competition. But in any given city--even here smack dab in the
middle of silicon valley--there's usually only one or two broadband providers,
and it's usually AT&T and/or whatever cable company serves the area.

Likewise VISA and Mastercard...the credit industry is hostile to consumers,
and resistant to further competition (newest credit card to enter the field
is, I guess, Discover...but it spawned off of the Sears card, which had
existed for years), but not because of a few exclusive deals with retailers.
It's difficult to enter the field because of the regulatory environment...and
while it seems like the card companies should oppose the huge regulatory
barriers to working in their industry, in reality it just raises the cost of
entry. The established players pay, say, 1% of their revenue to deal with
regulatory overheard...but a smaller company entering the industry would find
that they have to expend 25%. The same effect happens to small businesses with
regard to taxes and payroll and such--my business pays a far larger percentage
of revenue for these tasks than Google or MS. In more regulated industries the
differential becomes prohibitive to the smaller businesses even existing.

So, the answer is: No. There is no basis for bringing up a case with the DoJ
in any of the instances you mentioned (probably even Ticket Bastard). And, no.
Breaking up the company in the current political climate is simply not likely.
Look to the Microsoft case from a few years ago for an example of how things
will play out (here and in Europe). Fines, promises to not do the naughty
things any more, etc. Breaking up a company is considered an unnecessarily
disruptive operation these days. And, there are _very_ few, if any, companies
that meet the level of monopoly that AT&T had when it was broken up (even AT&T
today, after re-merging all of its parts back into one evil ugly whole again
in recent years, is nothing like T of old).

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bradgessler
This is a two way street. In some cases, exclusivity helps entrepreneurs if
they're savvy enough to land those types of deals.

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HeyLaughingBoy
That's a great idea until _you_ decide that you want a contract to be
exclusive provider for X.

I currently have a product that I sell to a single customer who spends
$1,000's/year with me and he packages it up with other stuff and resells it
(kinda like AT&T/iPhone, dontcha think?). Under your "perfect world," his
competitor can come to me and _force_ me to do business with them whether or
not I want to.

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tptacek
No. Those companies don't have monopolies. Take your first example, consider
this, and then extrapolate:

AT&T isn't the only cell phone network provider in the market, or even a
dominant one.

Apple isn't the only smart phone vendor in the market, or even a dominant one.

Together, AT&T and Apple dominate only a market for Apple's own branded
product. Apple could simply choose not tell iPhones at all. It's hard to see
how anything the two companies do together restrain trade. You do not have a
right to redistribute or enable Apple's own products.

Ticketmaster has been the subject of repeated antitrust inquiries, and has
survived --- rightly so. Ticketmaster is under increasing threat of
obsolescence by companies like Live Nation, which are vertically integrating
(for instance, by signing record contracts with artists) and changing the
business model.

Etc, etc, etc. You have a better chance of boiling the ocean than of
reconfiguring capitalism to improve your startup's chances. Look elsewhere.

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hs
you can make an 'opposite' service to break exclusivity

for example, a site that compares different insurance policies/companies, etc

in my case (not from the US), i wanted to sell mutual funds and claim 1%
marketing fee :) ... i even passed mutual-fund-manager-certificate-govt exam
(just in case, also out of curiosity)

to my surprise (6 months and 1 web app later), only bank is allowed to sell
investment packages to individuals (for security reasons)

so not only i cannot take 1% cut (i'm not a bank), banks also do not want to
deal with unproven small fry

eventually, i changed my site into site that compares various mutual funds
(tables, graphics - love jquery+flot)

but alas, most of them performs below the index; so comparing them shows how
bad the funds actually are

anyway i ended up making it a non-profit site ... users love it and i got
various feedbacks applicable to my other web apps

