The Monopolies That Dominate the Internet

Tim Wu has a piece up at the Wall Street Journal pointing out that the free-market, open Internet — "competition in its purest form" — has evolved to be dominated by monopolies. Wu argues that this is nothing new, and that each wave of information technology in the US has followed a similar pattern. "Today's Internet borders will probably change eventually, especially as new markets appear. But it's hard to avoid the conclusion that we are living in an age of large information monopolies. Could it be that the free market on the Internet actually tends toward monopolies? Could it even be that demand, of all things, is actually winnowing the online free market — that Americans, so diverse and individualistic, actually love these monopolies? ... Info-monopolies tend to be good-to-great in the short term and bad-to-terrible in the long term."

Comments

Its not 'internet'. its 'free market'.

[unity100]

free market is what tends towards monopolies eventually. because there is competition, and nothing to prevent the big players from getting bigger, unless they make a HUGE mistake, all 'free' markets only function as free for all initial chaos environments until a hierarchy and order is established. as per the below post :

http://slashdot.org/comments.pl?sid=1847700&cid=34083272

Re:Its not 'internet'. its 'free market'.

[Drasil]

Agreed. In a dog-eat-dog world you eventually end up with one very fat dog.

Re:Its not 'internet'. its 'free market'.

[arivanov]

That _WAS_ the case.

It took a couple of millions to start a let's say router company 10 years ago. Now you need 100M to just consider it.

It took a couple of millions to start a network management company 10 years ago. Now you need 30-50M.

It took a couple of millions to start an ISP 10 years ago. Now you need something on the order of a few 100M.

The "several guys in the garage making the next big thing" is the norm in any market in the beginning. HP was started in a garage. Apple was started in a garage. You cannot however start a computer company in a garage today. The Internet is quickly approaching that stage. The number of areas where there are still breakthroughs of garage companies is small and decreasing and this is normal for the development of the market.

Re:Its not 'internet'. its 'free market'.

[BeanThere]

Something I've come to see and realize over the years (yeah I'm getting a little older) is that as long as the market is free, there will always be competition. Always. No matter how big, no matter how dominant a company might seem, there is always some other equally big and successful company - usually in a slightly different market and looking for new opportunities.

And they are particularly attracted when a market has "fat" in it - which is usually the case when de facto cartels or monopolies have formed. But even in low-margin businesses, it remains the case. People are always scared that some big company is going to take over everything. The free market can seem 'scary' in that regard - but isn't.

Competition acts a bit slower than we'd usually like, but it always acts.

I find the article a bit ridiculous actually, and its basic premises are completely false ... the author claims there is monopoly domination, and proceeds to "prove" this by giving a long list of all strong companies that compete with one another, some fiercely. Apple, Google, Microsoft, all fierce competitors, all quite capable of providing similar services to the others. And the very existence of both Google and Facebook ARE textbook cases of how the Internet has allowed one or two 'garage coders' to become billionaires and compete with the other major players practically overnight. Apple, also started in a garage in the first place, was also almost dead very recently, and re-started itself afresh. These companies are proof of how incredibly competitive the industry is, and how easy it is for new small players to get in and grow.

Facebook had competition even when it launched, from services like MySpace and Friendster, both still going, and would step in in a minute. Google Buzz is another potential competitor to Facebook. They are everywhere. If Facebook disappeared, users would simply migrate to another service.

Perhaps there are reasons unrelated to monpolies

[whoever57]

Microsoft's Bing, launched last year by a giant with $40 billion in cash on hand, has captured a mere 3.25% of query volume

Apparently, according to the author, MS's failure in search is purely down to Google's monopoly and completely unrelated to the fact that MS has in the past chosen to skew search results and hence proven itself to be an untrustworthy search provider? The "$40B cash on hand" number is meaningless, because MS hasn't chosen to spend $40B on entering the search market. Perhaps the difference is simply that Google has been able to develop and maintain a better product?

How hard?

[RightSaidFred99]

How hard would it be to go a week without Google? Or, to up the ante, without Facebook, Amazon, Skype, Twitter, Apple, eBay and Google?

Pretty fucking easy, actually. My God what are we becoming when people think this shit is so important?

Back in my day (well, ok, my grandfather's) we worried about important shit like steel, or oil. Hell, even telephone wire - it's physical, someone owns it, and they control it completely. Those are monopolies - you're strangled by one provider.

Facebook? Apple? Amazon? Give me a fucking break. Oh noesies, I can't go read about something cute one of some guy I barely know's brat kids did! Oh no, I have to buy a less expensive version that functions just as well of some gadget I don't need! Uh oh, I have to walk my fat ass to Target or order from one of the other billion internet stores!

Author makes common mistake of confusing a monopoly with most successful provider of something that one could, if one wanted, get from 20 other places.

It's crashing the economy

[copponex]

Our current market economy depends on finite supply, and with limited production capacity per person in order to employ people and pay them wages so they can also be consumers. As automation and robotics take over the means of production, only societies that can cope with overproduction with more socially shared resources will be able to thrive.

In other words, China and Europe will continue to eat our lunch.

Re:It's crashing the economy

[Anonymous Coward]

wow. Even by the (frankly bizarre) standards of the US that's a fairly extreme viewpoint. Whilst I don't want to feed the (very dedicated) troll too much, a few points:

1. You seem to think that the reason that China is producing is lack of government interference. Firstly that is simply not true as many industries in China are effectively nationalised. Secondly, some level of government regulation is generally recognised as a Good Thing, to try and reduce excessive pollution and other externalities. Growing the economy has to be balanced with keeping your cities inhabitable. Judging by the air quality in many big Chinese cities, some might say they haven't got the balance right yet.

2. The idea that if the government would only stop interfering then everything would be great is demonstrably wrong. For one thing, you can look at countries where there is little to no governance (Yemen for example) to see that things are far from great. Whilst less government interference can indeed lead to great gains for some, the experience has too often been that the majority of people experience something very different. The industrial revolution brought great gains, but in the short term the life expectancy of the UK dropped. Yearning to return to a Dickensian age where great industrialists make lots of money whilst the majority live in grinding poverty seems somewhat perverse.

3. Monopolies have tended to spring up around many new industries: railways, Bell telephone, Standard Oil etc. By and large these have started as unregulated businesses, but economies of scale have tended to benefit the largest companies. This then leads to a small number of companies dominating the field. Often it has been up to governments to step in and break up companies (Bell, Standard), and is why competition commissions have been set up to try and maintain a competitive market by breaking up cartels.

4. You seem to have a pet peeve about income tax. I realise this is a matter of personal conviction, but one of the jobs of government is to try and correct what we (the people / voters) perceive as inequalities or injustices in the (mainly) free market system. Whilst you might be perfectly happy with huge inequalities, I think most people prefer a world in which there was some sort of safety net, and in which losing your job doesn't mean living on the street. If only for the selfish reason that those on benefits/welfare are probably less likely to rob you out of desperation.

Re:Nope. It's the credit supply

[unity100]

irrelevant. even if there was no credit, in the long run all the assets would consolidate at the hands of more successful competitors. that is even assuming they started off equally, which is never the case.

read the post i linked down in the grandparent.

I quit reading TFA at;

[forgottenusername]

> Forgoing Google and Amazon is just
> inconvenient; forgoing Facebook or Twitter
> means giving up whole categories of activity.

I don't use facebook or twitter, but use google on a daily basis & amazon on a weekly basis.

Anyone that claims to not be able to live without twitter/facebook is not someone I wanna hang out with regularly. Or read what they have to say about tech :P

'Free market' means muddled thinking

[ShanghaiBill]

The term "free market" is used to mean "competitive market" and is also used to mean "un-regulated market", despite the fact that few markets are both competitive and un-regulated. When someone uses the term "free market" with out clarifying which they mean, they are either confused, or they are trying to confuse you.

Re:'Free market' means muddled thinking

[timeOday]

No. All unregulated markets devolve into monopolies - ultimately, political as well as economic. That's why dictatorship is the norm throughout human history.

The political innovation that made markets work so well is to counterbalance them with democracy, where the guiding principle is "one person one vote" (i.e. votes can't be traded away - the opposite of markets).

Governments are associated with monopolies when market forces overcome democratic forces within the government. Then you get illicit market activity, such as kickbacks, blackmail, and unwarranted granting of monopolies.

Re:'Free market' means muddled thinking

[poopdeville]

A market isn't functioning, let alone "free", if there is a monopoly player in it. A monopoly is a market failure, and cannot be solved by the market. This is because the market for a monopoly product is a monopoly and its consumers.

You should study economics instead of Libertarianism. The differences are vast.

Re:What a shocker

[sourcerror]

Maybe you should look up the East India Company.

Re:De facto, or de jure?

[maxwell demon]

Search is currently no better than it was 10, 15, 20 years ago.

20 years ago?

Really?

--
BMO

Yes. 20 years ago I could very easily search all existing web sites. :-)

Bullshit

[copponex]

3. I don't care if ANYBODY thinks gov't regulations is a 'good thing'. Gov't is terrible from my perspective for every single one thing completely and fully.

So, children should still be working underground until they die from exposure to their working conditions? Workers should be born into debt to the company hospital? Slavery should still exist if it's economically viable?

Really, no one takes you seriously except for yourself.

MPAA controls the US news media

[tepples]

The political innovation that made markets work so well is to counterbalance them with democracy, where the guiding principle is "one person one vote" (i.e. votes can't be traded away - the opposite of markets).

Mass media broke this. The parent companies of five movie studios control U.S. television news, which in turn controls the general public's awareness of issues and of candidates. Notice that TV news hasn't covered ACTA or other issues where the public could stand to gain at the expense of the MPAA or vice versa.

Governments are associated with monopolies when market forces overcome democratic forces within the government.

This has in fact happened. U.S. voters by and large do what the TV tells them.

Slashdot Economics

[tabdelgawad]

Only on slashdot would such economic bullshit (and the socioeconomic bullshit referenced within) get modded +5 insightful and repeated ad-nauseum. Free markets do NOT tend towards monopolies eventually. The vast majority of markets are not monopolies and are in no danger of becoming so, regardless of government intervention or regulation. The evidence on this is so overwhelming I wouldn't know where to begin. In fact, there are so few examples of natural/existing monopolies (where the efficient scale of production exceeds the size of the market) that we tend to use the same examples over and over in classrooms and textbooks (public utilities).

The internet and information goods have some interesting characteristics (e.g. network effects) that tend to encourage consolidation, but even in this area, changing technology and consumer preferences tend to overthrow dominant firms (e.g. Microsoft).

And yes, I'm an economist.