Modern Monopolies

Consider the law of Supply and Demand, which is the backbone of a market economy.

In a competitive market, the price of a good will settle at an equilibrium where the quantity demanded will equal the quantity supplied.

Under perfect competition, the price formed will be so low, that will earn competitors just enough to stay in business, or maybe less.

Some real life examples resembling the case may be coffee shops, since coffee price is very similar at a Cafe Nero and a Starbucks. (That’s not a ceteris paribus case and Cafe Nero with Starbucks don’t sell the same things but that’s to demonstrate the point).

Now, a monopoly exists when that business is the sole supplier of a particular commodity. Thus, a monopoly is characterised by a lack of competition, and allows for a high monopolistic price.

Thus, in the case of the supply and demand curve, the price can be as high as the monopoly can sell.

But are high monopoly prices a good thing? Let’s consider some modern day monopolies.

Amazon, Facebook, Google, Microsoft, Apple. Consider their core business.

Google can be characterised as a monopoly in its core business, Search. Usage in Spain, Italy, France, Germany and UK at 95%. Revenues in 2017 reached 110b, with gross revenues at 65b

Amazon is a special case, because it’s the only company that comes to my mind that monopolises multiple industries in a diverse fashion, but for the sake of the argument, consider its core business, e-commerce. Revenues in 2017 ? 178b, gross profit 66b.

Let’s take Microsoft. It’s core business, desktop OS is a clear monopoly with a 90% market share in the global market, in Desktop computers.

You get the point.

However, do these companies with a monopoly status and extraordinary profits improve our lives?

Amazon enabled me to have everything home delivered in London, in 2 hours, at the best possible price.

Google democratized knowledge, and allowed me to find anything needed no matter where I am in a split second.

Facebook allowed me to connect with anyone I want worldwide.

The conclusion is yours to make.

What do these companies have in common?

They are all platforms, with an ecosystem of users.

Google matches publishers with readers (websites with searchers).

Amazon matches sellers with buyers.

Facebook matches people.

Apple matches creators of apps with iPhone users.

In other words, their core business is an ecosystem of users, and its the one thing they do well. There can never be another Google. There can never be another Apple.

The above facts bring the ultimate conclusion :

The Core Business of each of those monopolies is the one thing they do well.

As long as the form of a phone is the form we know today, Apple will seem the premium version no matter how hard Google and Samsung try. You might argue whether Apple is a monopoly, with only 20% of the global sales in phones. Apple is a monopoly in the high end phones, and makes 10x what Samsung makes in terms of profits.

In the same manner, as long as we search on a mobile or a desktop device, Google will be superior, no matter how hard Microsoft tries with Bing.

And Facebook will be superior no matter how hard Google tries with Google+. Changing human behaviour is most of the times impossible.

However, they can always get disrupted, with a different form (hint:Alexa and voice), but thats a topic for another post.

Now, before you jump the ship and start a platform, to copy these guys, consider that it took Amazon 20 years to become what it is today. It took Google 20 years to become what it is today.

Because it’s orders of magnitude more difficult to create an ecosystem of users.

Consider a linear business model. You produce a product or service, and you sell it to the consumer. That may be a coffee shop, a supermarket, or even a consulting firm. You control the quality, you control the distribution and the value is created by the final product.

A platform is a non linear business. The value is within the ecosystem. Within the ability of the platform to match two individuals.

An example of this may be Uber. It matches drivers and people that need a taxi. If Uber had 10x more drivers than people that needed a taxi, then the drivers would get no traffic, and they wouldnt use the service. Vice versa, if there where too many users, and few drivers, the users wouldnt find a taxi and would never use the service.

Furthermore, consider matching the two sides as Art.

And that aside, if you copy Bill Gates, Jeff Bezos, and Steve Jobs, you learnt nothing from them.

However, after you manage to build an ecosystem, and after you manage to establish the platform, there is no looking back.

No competitor can match these big monopolies.

Walmart, a multibillion dollar company, needs hundreds of millions of investment to enter another country. Amazon needs another server.

Hilton needs millions of dollars investment to create a new hotel. AirBnB needs 0.

Facebook is the biggest content creator, yet it creates no content. AirBnb is the biggest hospitality company, yet it owns 0 houses and hotels. Uber is the biggest taxi company worldwide, yet it owns 0 taxis.

Those are the successful companies of today.

How can you disrupt them?

Change the facts.

Microsoft dominates desktop. You disrupt them with mobile.

Apple dominates mobile. Change the form. Holography? VR? AR?

Google dominates search in mobile and desktop. Change the medium, give people the option to search with voice, with mind, with movement.

Food for thought:

All of them are centralised systems. Remember blockchain?

Considering that monopolies are the most succesful companies as of today, and they avoid competition at every cost, is there a falacy in the education system?

What did it really take me to enter the door of Imperial College?

20 years of competition with my peers at different levels and diverse topics. I had to excel at school in Maths, Computing, Physics, Chemistry, Arts, Athletics etc.

And the baseline of competition was how well my peers performed, in those diverse topics.

If we learned one thing, is that the most successful companies are those who stick and perfect their core business and avoid competition at all cost.

Is there a logical falacy?