Strategy is simple: "become a monopolist"
It looks as if
Peter Theil has read Chapter 10:
The problem with a competitive business goes beyond lack of profits. Imagine you're running one of those restaurants in Mountain View. You're not that different from dozens of your competitors, so you've got to fight hard to survive. If you offer affordable food with low margins, you can probably pay employees only minimum wage. And you'll need to squeeze out every efficiency: That is why small restaurants put Grandma to work at the register and make the kids wash dishes in the back.
A monopoly like Google is different. Since it doesn't have to worry about competing with anyone, it has wider latitude to care about its workers, its products and its impact on the wider world. Google's motto—"Don't be evil"—is in part a branding ploy, but it is also characteristic of a kind of business that is successful enough to take ethics seriously without jeopardizing its own existence. In business, money is either an important thing or it is everything. Monopolists can afford to think about things other than making money; non-monopolists can't. In perfect competition, a business is so focused on today's margins that it can't possibly plan for a long-term future. Only one thing can allow a business to transcend the daily brute struggle for survival: monopoly profits.
This is an interesting post. When one initially thinks of a monopoly within a business our thoughts are not good. We assume they will hike prices and price gauge as there is no competition to worry about. However, this post makes being monopolist a good thing for a business. While Google is not a true monopoly they are one of two major search engines, and for most Good is the only option. I know for myself I would never use Bing, I have tried the website and I do not like it. Personally I find my search results better using good. It is interesting though that this post states that a monopolist organization can focus on things other than just making money to keep their doors open, just as expanding to better serve the consumers and offering better employee benefits. Monopolist organizations can also focus on the community, in Googles case, they have a whole section just for community giving. As Good states “Giving begins in the places where we live and work. We support local nonprofits in their efforts to make our neighborhoods and schools cleaner, safer and smarter.” While we always though monopolies were a bad thing, in this case being a monopolist company gives Google the ability to give back.
ReplyDeletehttps://www.google.com/intl/en/giving/index.html
I have to agree with the other comment as well. I have the thought of a monopoly as a negative thing. They do indeed in this post make it seem like it is not such a bad thing. I believe that is the way it is due to the fact, there isn’t room for a million search engines, and there isn’t a demand for such a thing. I use google 100 times a day. Have used Bing only a handful of times and was not impressed. I believe this in a sense does make google a type of monopoly as they own the majority of customer base and customer satisfaction. This is beneficial to not only google but the people that are positively affected by google and the things they give, and the type of organization they have become. Google can do good things, and spend money doing so, as well as hire hard working (and maybe more expensive) staff. This allows them to stay ahead and be able to do all of the things that make them great. Their lack of competition is to thank for that, and can also be thanks for making them a GREAT, yes great monopolistic organization.
ReplyDeleteMonopolists can concentrate on providing a superior service with high quality goods and service to consumers by strategizing unique offerings that competitors have not developed. Although Google holds the 65% of the market share in comparison to competitors of Microsot's Bing and Yahoo, Google also controls 80% of all search-related advertising. Furthermore, Google has developed the Android operating system for smartphones. (Source: "A Google Monopoly Isn't the Point," Businessweek, September 3,2011)
ReplyDeleteAll happy companies are different: Each one earns a monopoly by solving a unique problem. All failed companies are the same: They failed to escape competition." (Source: L. Gordon Crovitz, "Three Cheers for 'Creative Monopolies,'" The Wall Street Journal, October 13, 2014.)
Monopolies can hold higher than normal pricing and can use those profits for developing unique products by engaging in research and development for those products that solve a problem. Lowered costs down the road results which are passed on to consumers.
Innovation is key to success for monopolies and consumers benefits. Had taxi companies foreseen the vulnerability of their business model, cabs might have flocked to smartphone apps and electronic payments years ago as Uber upended the local transportation market, it didn’t need to buy an automobile fleet or get permission from city taxi commissions.
Reference: Radia, R. (2016)Monopolies, Like Google, Are Innovators, Which Is Good for Consumers. NYTimes.com Retrieved from:http://www.nytimes.com/roomfordebate/2016/04/28/is-google-a-harmful-monopoly/monopolies-like-google-are-innovators-which-is-good-for-consumers
I am wondering if serial entrepreneur Peter Theil read chapter 10 before writing his book, Zero to One: Notes on Startups, or How to Build the Future ! In his book, Theil refer to the seven questions- engineering, timing, monopoly, people, distribution, durability, and secret- that every market-creating business must answer. He was involved in several successful market-creating businesses such as PayPal (sold in 2002 for $1.5b), and speaks from experience. He believes that the way to cope with competition is by avoiding it, and monopoly is the condition of every successful business. All truly successful market-creating firms are de facto monopolies. In his perspective, creative monopolies are valuable for society, and de facto monopolies are not eternal. For instance, de facto monopoly of IBM was followed by de facto monopoly of Microsoft, which in turn was followed by de facto monopoly of Google.
ReplyDeleteTheil’s seven-question game plan mainly works for startups launched by visionary, passionate entrepreneurs, not for established companies that are shy away from risk and unpassionate about their work (Denning, Stephen. “Identifying the new opportunities and threats in the Creative Economy.” Emerald Group Publishing Limited. 2014, Vol. 42, NO. 6, PP. 3-9.)
I personally, disagree with monopoly. How many businesses have to scarify in order one business becomes monopolist? And how society benefits when a monopolist gets a whole pie from participants in an industry. As this blog mentions, “Google doesn't have to worry about COMPETING WITH ANYONE, it has wider latitude to care about its workers, its products and its impact on the wider world.” It’s all about Google and its employees; how its motto of DON’T BE EVIL is indication of ethics when the company isn’t worried about non-Googles?! I agree with competition, it makes innovation process faster and constantly brings new ideas to businesses or create a new business. But, with cooperative competition, companies can work with other industry participants to build a larger pie enough for the industry and its society (Froeb, & et al, 2016).
My family can no longer play the game Monopoly because it tends to get too cut throat and tensions boils over into our “real life” - and this is among people that actually like and love each other. So imagine the havoc and mayhem that monopolies can have on capitalism and competition. Frobe, McCann, Shor and Ward a monopoly is a “firm that is the single seller in its market; their market power comes from the fact they produce a product or service without close substitutes, have no rivals and barriers to entry prevent others from entering the industry” (Frobe, McCann, Shor and Ward). Monopolies have a bad reputation that is desirably so and although there are many laws in most countries (like the Sherman Anti-Trust Act in the U.S.) to prevent them, you would be surprised just how many monopolies are currently in business and thriving. One example of a current day monopoly is Luxottica, the biggest manufacturer of glasses in the world. Back in the 1980’s they started purchasing as many eyeglass manufactures they could find and sell them through different brands Today they produce over 80% of eyewear worldwide, and made a profit of $9.7 billion in 2013 alone (Chirila). Another example would be the lovely Monsanto we touched upon in Module one, who not only into creating pharmaceuticals, agriculture products and food ingredients as well – corn in particular. Due to the patents that they have, farmers are dependent on their pesticide resistant seeds, 80% of the corn harvested each year in the United States is Monsanto engineered (Chirila). But monopolies aren’t all bad; in fact sometimes they are necessary. One such case would be in regards to electric utility companies. Another positive of monopolies is that they enjoy economies of scale (because it’s the only supplier of product) so any benefits can be passed on to the consumers (Amir).
ReplyDeleteChirila, A. (2015, January 29). 10 Companies You Probably Never Realized Had Monopolies [Web log post]. Retrieved March 9, 2017, from http://www.toptenz.net/10-companies-never-realized-monopolies.php
Froeb, L. M., McCann, B. T., Shor, M., & Ward, M. R. (2016). The One Lesson of Business. In Managerial Economics: a Problem Solving Approach (4th ed., pp. 18-26). Boston, MA: Cengage Learning.
Amir. (2013, May 29). Advantages and Disadvantages of a Monopoly [Web log post]. Retrieved March 10, 2017, from http://www.economicsguide.me/?page_id=1044
At first it does indeed seem that a monopoly is what companies should strive for in their respective industries. Apple clearly learned that lesson after competition eroded the profits form it’s IPOD ( Froeb, et al, pg. 120). It seems that Apple’s IOS ecosystem was founded with those lessons in mind. By tightly controlling the APP store market of ITS IOS ecosystem Apple is hoping to fend off the same competitors that earlier put an end to high profit streak of its IPOD. While this is a strategy that worked well for Apple in the rich US market, where as of January 2017 it controlled 44% of the market (Hull 2017). The story was much different for Apple worldwide where it was steadily losing market share for four straight quarters 2015 and 2016 (IDC 2016).
ReplyDeleteLuckily for Apple, Samsung’s “exploding” phone landed just in time for the holiday rush and Apple was able to make a brief recovery, but I doubt that it will be long lived (Protalinski 2017).
Apple is also facing a lawsuit over it’s IOS app distribution monopoly ( Bamburic 2017). Apple’s struggles exemplify the difficulty of becoming or maintaining a monopoly in today’s business environment. While companies may strive to become monopolies, getting there and staying there is for most industries a difficult at best and an impossible at worst undertaking. And even though I understand why organizations would want to become monopolies, I do not understand why governments would allow it.
Unregulated monopoly of a market comes with a danger that greed will overcome ethical responsibility to society. Why would we want companies being able to set any price that they want just because they can? This is apparent in the pharmaceutical industry where it has become common practice to purchase existing medications and then raise their price ten fold, fifty fold, one hundred fold. Perhaps the most infamous example is Martin Shkreli and Daraprim, but there are several other examples of such pricing tactics with EpiPen standing out as another well publicized example (Long 2016). Monopoly may be great for the seller, but it can mean quite the opposite for the consumer.
Bamburic 2017 https://betanews.com/2017/01/13/apple-lawsuit-ios-monopoly/
Hull 2017 https://www.neowin.net/news/comscore-publishes-us-smartphone-market-share-statistics-for-january-2017
IDC 2016 http://www.idc.com/promo/smartphone-market-share/vendor
Long 2016 http://money.cnn.com/2016/08/25/news/economy/daraprim-aids-drug-high-price/
Protalinski 2017 http://venturebeat.com/2017/02/01/idc-smartphone-shipments-up-6-9-in-q4-2016-apple-overtakes-samsung-for-first-place/