Tech Sector: Monopoly Proof?

There is a post on Slate.com by Farhad Manjoo whose title tells the storyThe Case Against the Case Against Google, The Department of Justice should take a hint from the Microsoft suit: no more antitrust actions against tech companies. Essentially what Farhad is arguing is that a)there is plenty of competition in the search market that Google is in [but most of the players have tiny market shares] and b)Google has failed to create a major share let alone a monopoly share in any of the other markets it is in [which ignores the dominant position of Google Map and Google Earth in the online mapping market]. Implicit in his arguments is the old DOT.Com belief that this is a brave new world of very rapid technology change and adoption which makes it very hard for leading incumbents to retain technology leads. Such an argument –  “tech change always brings down tech leaders” – could cite Apple II and the Palm PDA for examples [both had large but never monopoly shares].

Economist Joseph Schumpeter famously said that “Monopolies sow the seeds of their own destruction” – the problem is that he didn’t say how long that process would take

This party would beg to differ  – the whole argument that Tech things are moving too fast for any permanent market domination is so DOT.COM Bust misinformed and misleading. Take the browser market which was won by Microsoft by “cutting off the oxygen” to Netscape more than 10 years ago. Despite having an IE browser that first,  was a  great security hazard,  and second , not functionally updated for 7 years – despite these shortcomings IE continues to own 70% plus market share. And this continues despite the fact that 4 other browsers (Apple Safari, Google Chrome, Mozilla Firefox, and Opera’sOpera) :
1)are faster by 2x-8x times than IE;
2)are more standards compliant than IE by wide margins in CSS, DOM, JavaScript, etc;
3)have out innovated with new features [latest is big lead on HTML 5 new features over IE] Yet those better browsers in total  have barely eeked out 30% market share in the last 3-4 years.

Economist Joseph Schumpeter famously said that “Monopolies sow the seeds of their own destruction” – the problem is that he didn’t say how long that process would take. Unfortunately, it appears to be 10 years++ and counting in the case of Microsoft’s domination of browsers and Apple on iPod players and Google in Search Engines, etc. The key is whether a company  with dominant market share is a)able to charge monopoly profits  and b) able to slow the entrance and/or success of competitors in the market. Microsoft has certainly done both on the desktop with Windows, Office, and the IE browser.

And the same could be said of the display of search results by Google. No improvement for 5-6 years even though Ask, CUIL and others had great innovations on their search engines display routines. But let Microsoft, a potentially powerful player, make the Bing change to search display – and suddenly co-CEO of Google, Sergei Brin, sees the need for a special Google task force to address an issue that had been on the back burner for years.

Yes very rapid development can eventually turn  several smaller markets into a bigger, competitive stewing pot – but think many, many years as in the case of digital hand games, digital calendars, PDAs, PDA+phones, Smartphones finally => cheap “attack” phones and now  laptop/notebook pricing. So Innovation will change markets but not continuously and the first starter [and often monopoly] incumbent can often keep pace “by copying the innovators” and/or “buying out” key technologies and then controlling the pace of their deployment to meet their own profitability targets – and not the risky demands of users in the market place.

In sum, it appears  that Farhad is discounting the fact that major monopoly players can and do control the rate of change in the markets they dominate. Look again at energy innovation in the auto sector for starters. So lets not be naive about economic power in the tech sector – monopolists certainly want to control the rate of innovation in their markets. And despite rapid technical change – they have the economic heft and incentives to do so. Eventually, markets correct – but it takes much longer to do so once  player passes the 50-60% market share level. But the markets do change because players cannot control innovation forever particularly with the merging of many submarkets as in the hand game to smartphone evolution. Meanwhile beware the message bearer saying “this market is monopoly proof”.