Blog Post

The Myth of the Benign Monopoly

For years, at various times, tech giants such as Microsoft (s MSFT), Google (s Goog) and Apple (s Aapl) have all been referred to as “benign monopolies.” Companies tend to earn that moniker when they reach a certain level of dominance in global markets, and have command over widespread standards. But now, more than ever, it’s worth remembering that extreme market dominance introduces trends that are far from benign.

As I look through many of today’s biggest tech headlines, and popular interpretations of them, I’m struck by how unpredictable people are at both leveling criticism against and showering praise on tech companies that command extreme global market power. Antitrust concerns, for example, are seen as a “mark of Google’s success.” And Adobe (s adbe) Flash apparently doesn’t need a kick in the pants or a challenge from competing and possibly better technologies; instead, it has worked beautifully for over 15 years. And just look at the flame war I incited in a recent post on Apple, when I suggested that it is increasingly pursuing closed policies, with the iPad shaping up to be the company’s most closed product ever.

In a post today titled “Is Monogamy Good for Technology?” Matt Asay describes the conundrums he is facing as he takes on his new job as COO of Canonical, which, of course, requires him to use Ubuntu Linux. A longtime user of all things Apple, Asay notes that Apple COO Tim Cook has recently suggested “that the magic of Apple is its seamless interoperability with other Apple technology.” Certainly, I have heard many Apple users praise the company’s products for working so well together, even as critics argue that closed technology is the byproduct of that phenomenon. Google, meanwhile, draws much praise for open policies, but has also made clear that its attitude toward openness isn’t entirely altruistic.

It’s worth noting that big commercial technology companies throw their weight around the world in increasingly anti-open, and dangerous, ways. As OStatic notes today, the powerful International Intellectual Property Alliance (IIPA) has just produced a 498-page report for the office of the U.S. Trade Representative arguing that government mandates to use open-source software must be “carefully monitored.”

The IIPA report recommends that numerous entire countries be placed on international watchlists because their governments favor such software, which it characterizes as a threat to innovation. A closer look at the report, though, shows that its recommendations are made in conjunction with the Business Software Alliance, which counts among its members Microsoft, Adobe, Symantec (s SYMC), IBM (s IBM) and many other large commercial software providers.

I’m in agreement with Asay that “no vendor dominates innovation once and for all.” While it is true that the most powerful technology companies have helped establish standardized ways for things to work together, it’s also true that closed policies and total market dominance must be questioned — always.

Innovation all around the world depends on countries, governments, companies and users finding harmonious ways to work together. Just ask the Chinese science community, which has made clear that without Google’s technology, its research efforts will suffer enormously. Now, more than ever, there needs to be a healthy and open global ecosystem for technology innovation, and the most dominant technology companies bear great responsibility for protecting it.

Image courtesy of Flickr user Mark Strozier.

Related Post On GigaOM Pro: Intel, Oracle and Antitrust: The IT Landscape Hangs In The Balance

21 Responses to “The Myth of the Benign Monopoly”

  1. the difference between google and microsoft/apple is that google is an opt-in system. no one is shoving google services down your throat and no one is paying to preinstall it. almost every oem has to pay the microsoft tax which the oem passes on to me at purchase, whether i use the software or not.
    so sometimes i dont even have the choice to opt-out of the microsoft tax. if you dont believe me, try to call an oem and ask for a refund because you never agreed to the eula and are a linux user and see how far you get.

  2. “Monopoly” never applied to Microsoft, and it doesn’t apply to Google today. Consumers have choices, they’re not getting gouged, and the products keep getting better, with a few exceptions:
    *Apple’s hardware is ridiculously expensive, and their security has some catching up to do. (Please: don’t make the mistake of confusing obscurity with security.)
    *Google’s search and maps are being overtaken by Bing. Try it! Bing 3D maps are much better than Google Earth for some uses e.g. aerial views from various perspectives, and it’s integrated right into IE or Firefox with Silverlight.

    • What would it take for Microsoft to count as a monopoly? Since Microsoft owns market shares starting with 9’s for both PC OS and office applications, yours must be a pretty esoteric definition.

      • @Paul: no, it’s not at all esoteric of a definition.

        Look it up:

        Can anyone here argue that Microsoft is or was a monopoly, without also implying that Apple is also a monopoly? Or, Google?

        Microsoft has dominant market share because of general product excellence. No, they’re not perfect, but they’re always improving, and they serve their customers very well. Apple will never be successful in business unless they can deliver without all the secretiveness and control (e.g. of the very expensive hardware).

      • Well hey, I had an epiphany:
        probably the reason people like to think of Microsoft is a monopoly (other than the obvious: it’s just fun to have a villain, and Microsoft is a great big successful target, and there are many people in small businesses out there who stand to gain if Microsoft fails) is this: there are some free alternatives out there, but yet Microsoft still has huge market share, therefore Microsoft must be strong-arming them, and they’re probably sending disloyal customers over the pier in concrete galoshes while they’re at it. That’s just silly.
        I use open-source software daily for a bunch of applications, and generally, the quality just sucks. I waste so much time working around the flaws, restarting the applications, etc. that it would save the company money if they just sprang for licenses for some quality tools.

  3. Nice piece — far too rare generally. I would only add that questioning isn’t nearly sufficient. With electronic monopolies in particular, it requires a very proactive, disciplined, and sophisticated response that must begin at prevention. Once critical mass is reached with network dynamics, it’s often too late. Regulators have been more naive and ignorant in technology than in banking. Your warning on open source is also valid.

    You just touch on it here, but a few years ago a pair of Harvard professors nailed the dynamics between monopolies and OS as a mutually beneficial duopoly. I included links in this post on the problems with software if interested:

    • @ Jim and Mark — open source is much more popular in regions outside the U.S. than in it, and if the trend continues, then there will almost certainly be more forced openness if the US SW industry wants to stay competitive. Firefox is already the most popular browser in several countries–other open source apps and platforms will follow suit. Mark, that is a cool link. Thanks.

  4. Great article. I agree with many of the previous posters, and, contrary to popular belief, Apple may be dominant in players, but not music listening – Pandora, and to some extent, are taking over very quickly. Coming from the telco industry, a classic example of how government intervention with the best of intentions can create perverse incentives, I can only hope that the thrill of entrepreneurship inspires more innovation than the allure of being a “big company” employee. We could also go for a revamp of our intellectual property system (understatement, I know, but the UTPO makes the NTSB look sophisticated).

    One last note – I’ve heard that if there isn’t global parity in “openness” that our best of intentions in this area could result in other countries gaining competitive advantage. Do you think that there’s some of that at play – let X be strong, even to the point of monopoly, for the sake of more US jobs? (It’s a twisted argument, but here in the Midwest, there are many).

  5. There is a difference between monopoly and closed system.

    Closed system doesn’t mean no competition in the market space. You can have competition between many closed systems. RIM vs Apple vs Palm. And there’s still competition between these guys and so-called “open” systems.

    I think MS and INtel have much bigger moats around their products than Apple or Google and thus they are bigger monopolies.

    Apple doesn’t really even have a monopoly. Dominant market share in mp3 players, but that has been decreasing. They could be on the way to one with the iPHone and Touch, but that remains to be seen.

    With iTunes being DRM free there is next to nothing stopping anyone from switching to a competing mp3 player. And there’s only so far one can improve an mp3 player – law of diminishing returns. Don’t believe me? Look at toasters. Been the same for essentially 60 years or so.

    Similar thing with Google. Competition is a click away and one of their competitors is extremely well-financed. Sure Google offers advertisers the most eyeballs, and can always beat the rates (per eyeball) of the competition to keep the competition at bay, but (if they) fail to keep outpointing the competition they lose market share.

    MS, in contrast, is so dominant they can basically do anything and consumers have little choice but to stay with them. Perhaps their biggest competition is themselves because software doesn’t wear out. But when you’re heavily invested in programs and your company or school requires you to use certain programs then it is difficult to switch. You can see how progress comes so slow when a company is a true monopoly because they can screw up for 3 or 4 years with a crappy product while the competition has a much more superior product and they lose next to no marketshare.

    They are so dominant that their only real competition is Apple and Apple only does hi-end products and only has single digit market share. Or it’s Linux which is way too much “geek” for the vast majority of the market.

    Plus that’s not their only monopoly. Office is their 2nd one and maybe their biggest one. Difficult to use another program when you need others to read and edit your documents. MS also uses OFfice to keep Windows in every consumer’s home. You can’t switch to Linux and use Office. There is no Linux version. There is a Mac version, but it’s always the 2nd class citizen which prevents many from switching.

    INtel only lets AMD live so the DOJ do not get on their case. Basically what MS does with Mac Office. They’ve held back the market by not innovating on the chip side fast enough. Maybe we’d have a bunch of different speciality chips in desktops if Intel wasn’t dominant.

    • @trip1ex — yes, there are differences between closed systems and monopolies. I see a lot of tolerance of both these days, though, and not enough questions.

      @ Greg — there are indeed prices to pay for open systems. Google is a good example, though, of a company that practices quite a lot of openness to its own benefit. It’s not totally open, but pursues some open strategies in good, strategic ways.


  6. There are clear ways in which, for example, Apple can open up more — allowing people to legally jailbreak their iPhones, even if it still voided the warranty, would be a monumental step in the right direction without sacrificing the “just works” advantage for those desiring it — but what else can we reasonably expect of Google? It’s very easy to switch to a competing search engine, and while switching away from their other services is probably harder, it’s far easier than it is to jump ship from most competitors.

    I could start using Bing anytime I wanted if it didn’t suck. Is that Google’s fault?

  7. I totally agree that there is no such thing as benign monopoly.

    But I cant get past the first paragraph: describing Apple as a monopoly in any sense of the word is a nonsense.

    • Why is it when Apple’s name is mentioned some people get so upset? There is good and bad about each company.
      “But I cant get past the first paragraph: describing Apple as a monopoly in any sense of the word is a nonsense.”
      When it comes to music yes, even with all the phones that can “play” Apple is a monopoly with iTunes.
      And I think Sebastian is refering to the early days when the Apple II dominated computing.

  8. It’s true that closed technologies must be questioned, but the hard part is weighing the tradeoff between uniform standards and fragmentation. For example, has Intel at times abused its dominant position in CPU chips? Probably, although I’m not by any means an expert on the legal background. But I’d be willing to bet that any harm to customers as a result is far outweighed by the efficiencies of having a single de facto x86 standard in the industry for so long. In contrast, it’s great that we can choose between Android, the iPhone, and all the other smartphone platforms out there, but it raises costs for application developers that want to reach the entire market and consumes resources that could otherwise be used to create additional new products.

    My point is just that there’s always a price to be paid for the open, heterogeneous ecosystem. There are very few markets where an open standard emerges, as opposed to a variety of incompatible competing approaches.