America’s Leading Technology Sector Is A Powerhouse For Innovation And Competition
America’s technology sector is a textbook example of competition generating innovation. Even the sector’s most popular and widespread services are subject to fierce pressure to maintain customer satisfaction and attention. After all, there are few other areas of the economy where creating a new platform is easier, switching costs are lower, and competition is one click away.
Today, New Technologies, Low Barriers To Entry, And Non-Existent Switching Costs Keep Technology Companies On Their Toes
Dr. Karl Smith, Director Of Economic Research At The Niskanen Center: “Even Very Successful Firms Have To Keep Their Eye On The Ball In A Monopolistically Competitive Market Because Failure To Maintain Customer Satisfaction Can Lead To A Swift And Certain Death.” “What can happen, however, is that breakout firms—superstars if you will—crack the secret sauce to high satisfaction and mass production. Those firms will earn massive profits on very high markups. This is a lot like the U.S. tech market. But even very successful firms have to keep their eye on the ball in a monopolistically competitive market because failure to maintain customer satisfaction can lead to a swift and certain death. That, crucially, is what sets monopolistic competition apart from traditional monopolies or cartels. Monopolies and cartels are characteristically lackadaisical. Their customers have little choice and so the companies have little incentive to improve. Their high profits are the result of windfall good fortune or collusion rather than talent, skill, and hard work put into the pursuit of customer satisfaction.” (Karl Smith, “Fixed Costs, Markups, And Market Concentration,” Niskanen Center, 8/25/17)
Low Switching Costs And Multihoming Drove Competition In Communication Platforms With AOL, MSN, MySpace, And Orkut Rising Then Falling And Facebook, Snap, And Line Taking Over, Argues Economist David Evans. “A naïve view of indirect network effects implies that a successful communications platform would be secure from competition since people wouldn’t join or use a platform that didn’t include most of their personal network. The flaw in that reasoning is that people can multihome on online communications platforms. A few people in a network try a platform. If enough join, and like it, then eventually all of them could switch or drop the initial platform. This phenomenon has happened repeatedly. AOL, MSN Messenger, Friendster, Myspace, and Orkut all rose to great heights, and then rapidly declined, while Facebook, Snap, WhatsApp, Line, and others quickly rose. Nothing about the underlying economics or technology of online platforms has changed that would prevent this same cycle from repeating itself going forward.” (David Evans, “Why The Dynamics Of Competition For Online Platforms Leads To Sleepless Nights, But Not Sleepy Monopolies,” SSRN, 7/23/17)
University Of Florida Professor Daniel Sokol And CUFE’s Jingyuan Ma Say Challengers May Overtake Incumbent Firms Through New Ideas And Technologies, As There Are Low Entry Barriers. “Online markets are constantly transforming. Indeed, online markets typically have innovative challengers against incumbents. Challengers may overtake incumbent firms through new ideas and technologies. In such settings, there are low entry barriers. Digital competition offers many examples, like Facebook, Snapchat, and Tinder, where a simple insight into customer needs enabled entry and rapid success. Other examples include WhatsApp, Snapchat and Instagram. They were far behind Facebook, but made inroads without a large user base. In addition, Yahoo leapfrogged AltaVista and Google leapfrogged Yahoo. Each search engines had separately been declared the “winner” of search at one time.” (Daniel D. Sokol And Jingyuan Ma, “Understanding Online Markets And Antitrust Analysis,” Northwestern Journal Of Technology And Intellectual Property, 10/12/17)
The Notion That Monopolies Are Inevitable Isn’t Born Out By History
Economist David Evans Argues “The Last Twenty Years Of History Should Humble Anyone Who Claims That Online Platforms Have Secure Monopolies.” “The last twenty years of history should humble anyone who claims that online platforms have secure monopolies. The record is replete with forecasts, soon proved wrong and then forgotten, that the winners that took all, or most, were unbeatable. Online platforms are impelled to innovate and compete for users because so many supposed winners have in fact been beaten. Thus, as of now, comparisons between the online platforms and old titans are inapt and overwrought.” (David Evans, “Why The Dynamics Of Competition For Online Platforms Leads To Sleepless Nights, But Not Sleepy Monopolies,” SSRN, 7/23/17)
Geoffrey Manne And William Rinehart Point Out The Failures Of Yahoo!, AltaVista, And Myspace. “Yahoo! and AltaVista were early leaders in keyword search, only to be superseded by Google when they failed to keep up with spam and Google’s technological acuity. MySpace, which ranks as one of Rupert Murdoch’s biggest losses, was yet another ‘monopoly’ that demanded antitrust scrutiny. But the ‘market’ that MySpace allegedly alone occupied turned out to be considerably bigger than its specific (music and entertainment) approach to social networking and the site quickly lost its dominance to innovative adaptations of its model like Facebook and Twitter.” (Geoffrey A. Manne And William Rinehart, “The Market Realities That Undermined The FTC’s Antitrust Case Against Google,” Harvard Journal Of Law And Technology, 7/13)
Back In 2007, Commentators Argued That MySpace’s Data And Scale Gave It A Huge Advantage And People Were “Locked In.” “It is common knowledge that a fax machine is worthless until others have one too. That is what is happening in social networking except that, unlike a fax machine, it can’t be instantly swapped for another. It is easy to change search engines, even if it is Google. But if you change social networks you not only have to move all your videos, audios, messages, photos elsewhere but you also lose your network of friends unless they migrate with you. MySpace won’t make that easy. Its massive user base will help maintain its dominance, according to co-founder Chris DeWolfe. ‘In social networking, there is a huge advantage to have scale. You can find almost anyone on MySpace and the more time that has been invested in the site, the more locked in people are.'” (Victor Keegan, “Will MySpace Ever Lose Its Monopoly?” The Guardian, 2/8/07)
And Changes In Technology, Network Effects, And Brand Value Can Happen Quickly, Undermining A Particular Company’s Market Position
iCrossing CEO Guy Phillipson Predicts 2018 Will See A Rise In Voice Search. “Voice search has already reached 20% of all queries. That’s critical mass in my business book, so we must be heading for the early majority on the old bell curve. With Google, Siri, Alexa and Cortana there’s a whole gang of virtual assistants taking our commands, and getting smarter in the process. This will have a positive impact on our SEO strategies in 2018, as we optimise and generate content to respond to longer (and sometimes surprising) consumer voice queries. For those who do it well, this should become a seamless element of the modern brand experience.” (Guy Phillipson, “Eight Predictions For Digital Advertising In 2018,” The Drum, 12/21/17)
Ronald Cass, Dean Emeritus At Boston University School Of Law, Explains Network Effects Can Also Be The Reason That A Firm’s Dominance Comes To An End. “While network effects can establish or sustain dominance within a narrowly defined market, network effects also can have just the opposite effect: they can be the reason that a firm’s dominance comes to an end, as the success of a dominant firm is a spur to investment in competing technologies, including technologies that can replace the currently successful product or service.” (Ronald A. Cass, “Antitrust For High-Tech And Low: Regulation, Innovation, And Risk,” Journal Of Law, Economics, And Policy, 8/30/12)
Through Surveys Of Nearly 15,000 Customers About 300+ Brands Across 27 Industries, Prophet’s 2017 Brand Relevant Index Found “Name Recognition Has Little Impact On Relevance.” “Our Index makes it clear that in today’s fast-paced world, where brands can rise and fall so quickly, name recognition has little impact on relevance.” (Scott Davis And Jesse Purewal, “What We Can Learn From The Biggest Movers In 2017’s Brand Relevance Index,” Prophet, 11/17)