Wednesday, September 3, 2008

Viva Monopoly!

With the launch of Google’s new browser – Chrome – I can’t help but consider one of the basic laws of market economics:

Monopolies are good.

Back in 1997, strategy+business published an interview with Paul Romer, a Stanford economist that has been a leader in the development of new growth theory. In the article, Romer discusses how the possibility of monopoly gives incentive to the private sector to innovate new products, so that they may corner the market for a period of time and generate increasing returns on investment.

About that time (in 1997), Microsoft was considered the dominant software company and expected to run the computer world for generations to come. Since then, it's endured tremendous pressure from its destruction of Netscape and ongoing anti-trust battles across the world. I refer to Microsoft, because in the last decade we’ve seen Google emerge as the new leader of the information age. In leveraging their search engine technology and other innovations, they’ve launched Google Docs and Google Spreadsheets to compete with Microsoft Office. Their search has reorganized the way the companies build websites and deliver content. With the release of Chrome, Google is hitting Microsoft head-on in the web browser arena where Microsoft had the assumptive monopoly less than ten years ago.

From October 2007 through August 2008, the Windows operating system has gone from 92.5% to 90.6% market share, with Mac and Linux slowly creeping up. This 2% doesn't seem like alot, but ask Microsoft if they're worried. (Internet Explorer has lost 6% market share during this same period.)

Recently, Firefox nabbed 17% of the browser market and Safari grabbed another 6% according to Market Share. With Chrome now reported to have 1% of the market in just 24 hours, it seems that the monopoly is less than so nowadays.

Going back 20 years to the mid-1980s, Microsoft was the young, nimble company targeted the entrenched monopoly of the terminal computer. Seeing a pattern here?

No company, especially in the IT industry, is safe from competition. This is what drives Silicon Valley and the world to build the better mousetrap. Ten years from now, you'll be reading about how Google’s dominance is fading because of some other new emerging leader. Ten years is just a single business cycle in economic terms. While monopolies appears to exist, they don't last very long. That's why companies strive to acheive them, protect them, and maximize on them, because they know that they are fleeting.

Capitalism works if you let it breathe.


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