

In the Grip of the New Monopolists - grellas
http://online.wsj.com/article/SB10001424052748704635704575604993311538482.html?mod=WSJ_LifeStyle_Lifestyle_5

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fauigerzigerk
He makes some valid points, but what doesn't quite add up is that not all of
these "monopolies" are built on network effects. Google search, for instance,
doesn't benefit from network effects. Gmail doesn't benefit from network
effects, nor does anything else that Google does (successfully). Of course
Google benefits from its size in many ways but that's not the same kind of
self feeding dynamic as a network effect.

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.

~~~
bryanlarsen
Did we read the same article? The author definitely payed much less attention
to "network effects" than most articles on this subject usually do, explaining
that it is quite common for monopolies to be created for new technologies, as
well as giving several other reasons, some of which you reiterated.

~~~
fauigerzigerk
It appears to me that he explains the emergence of these monopolies almost
exclusively with network 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?

~~~
bryanlarsen
I think this is the meaty quote: "Apart from brief periods of openness created
by new inventions or antitrust breakups, every medium, starting with the
telegraph, has eventually proved to be a case study in monopoly. In fact, many
of those firms are still around, if not quite as powerful as they once were,
including AT&T, Paramount and NBC."

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"

~~~
fauigerzigerk
I do agree that the article has other things to say as well. It's not a bad
article. But I'm pretty sure that the second quote is supposed to mean that
network effects cause larger online services to be more convenient for users.
I don't agree with that in general. It's true only in some specific cases
where integration of several services makes things more seamless. Your quote
doesn't give a reason _why_ monopolies develop. It just states _that_ they do.
Also, there is nothing about how they can unravel pretty quickly.

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dasil003
I didn't really agree with this idea initially, but the argument was
persuasive. Certainly I don't think any of them have the kind of monopoly that
AT&T had, but Facebook might be close as they continue sinking their Facebook
Connect hooks in.

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.

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iwr
Remember that the great monopoly to be broken up by anti-trust law was in fact
a government-mandated one: AT&T. Without the government banning competition,
AT&T would have been very much different in 1974 (the time of the
divestiture).

~~~
wazoox
Infrastructure companies are natural monopolies. I suspect that Google,
Facebook, etc are actually natural monopolies, too.

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.

~~~
iwr
How do you reconcile that with the fact that it was illegal to compete with
AT&T?

Once upon a time, Altavista was The Search and MySpace was The Social Network.

~~~
wazoox
> How do you reconcile that with the fact that it was illegal to compete with
> AT&T?

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.

~~~
iwr
It became illegal because competitor operators were a threat to AT&T. The
government made a deal with them by giving them legal protection, getting some
political control in return. Even after the divestiture, the Baby Bells had
preferential treatment and received automatic mobile licenses when the
technology appeared.

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.

~~~
wazoox
> It became illegal because competitor operators were a threat to AT&T.

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.

~~~
iwr
A natural monopoly doesn't need legal protections, it will continue to exist
regardless. The very reason competition was banned was because it was
possible.

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doyoulikeworms
This system is "tolerated," simply because there is nothing wrong with
rightfully earned monopolies. Monopolies turn bad the moment they gain special
treatment from the government. That's where things get ugly.

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.

~~~
joe_the_user
Actually, I'd see Amazon, Google and Facebook as three somewhat different
types of monopolies.

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.

~~~
Qz
Google search is starting to suck a lot though. Now half the time I search for
something I end up with garbage and give up. Tried searching up the name of a
virus .exe and got a spam page instead of anything relevant as the first
result, with more spam pages for the rest. This is not a one time or
occasional occurrence anymore.

~~~
joe_the_user
Agreed and by that token Google seems like they could lose their position.

It's a shame since alternatives still look more evil.

~~~
wazoox
Duck-duck go definitely is not evil. Still suck for non english searches,
though.

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natmaster
Bullshit trying to distract us from the real monopolies like News Corp, and
AT&T.

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)

~~~
rjett
I wouldn't call it _bullshit_. The piece focused on purely online information
networks so I really don't think there's anything devious or subversive going
on here as your comment implies.

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kiba
Is Google a serious monopoly when it owns only 64.4%?
[http://content.usatoday.com/communities/technologylive/post/...](http://content.usatoday.com/communities/technologylive/post/2010/05/googles-
market-share-slips-as-bing-rivalry-heats-up-/1)

~~~
chaosmachine
Those numbers aren't realistic for most sites:

<http://news.ycombinator.com/item?id=1692758>

~~~
natmaster
Sample bias.

~~~
nostrademons
We don't know whether the sample bias is on the part of comScore or on the
individual webmasters replying to that thread, though.

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ojbyrne
Facebook is five years old. Holding them up as a exemplar of "monopoly" seems
a little misguided.

~~~
blueben
Oh? How many other social networking sites do your mother or cousin or friends
spend their time on? If you blocked Myspace and Facebook on your corporate
network, which one would people pitch a fit about losing?

~~~
ojbyrne
If they can be that dominating in 5 years, there's no reason they can't be
eclipsed by another company in the next 5 years. Myspace is an apt comparison.

~~~
bryanlarsen
Why is myspace an apt comparison? Myspace never had a significant market share
worldwide.

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mynameishere
_forgoing Facebook or Twitter means giving up whole categories of activity._

Seriously? Twitter is one of the most plainly worthless websites every made
and Facebook is a pure copycat of a copycat of a copycat.

------
julius_geezer
Google is the only one I use constantly. I've been on Amazon this out of
curiosity to see what people said about a book I disliked, but haven't bought
anything from them in years. Facebook? No. Twitter? No.

------
mattmanser
His conclusion is a little odd, but all in all an excellent summation of where
we are.

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.

------
DanielBMarkham
And the tool the new monopolists are using? The browser.

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?

~~~
mattmanser
This has nothing to do with the browser. This has to do with network effects.

~~~
DanielBMarkham
Your reply looks correct but incomplete. Yes, the immediate dominance has to
do with networking effects. But the network effects are all based on the
branding, and the browser delivers the branding along with the content.
Without the branding the network effects are negligible.

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.

~~~
nostrademons
It's a trivial Greasemonkey script to suppress all the chrome on a search
result page. If you really care that much, you or anyone else could whip one
up and share it with the world.

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.

~~~
DanielBMarkham
But this was the exact same situation users were in before the very first
search engines: there were many directory sites with lists of places to go.
Each site had a brand and users became attached to that brand.

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?

~~~
nostrademons
I think that there's room for us to abstract away branded search under a new
category, but I don't think new browsers are the answer.

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.

