The Monopoly Game

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Peter Thiel states in his book (Zero to One) that a monopoly is a good thing to aim for as a business as thats where you’ll make most money.  True I suppose but I wonder if thats an old fashioned way of thinking.  The assumption is that shareholders only want the company they’ve invested in to generate profit at the expense of everything else.

To me, that seems awful.  Surely it is every individuals, institutions and companies responsibility to contribute to society rather than always being wholly out for themselves at all costs?  Maybe shareholders demands will change over time as other elements of life aside from profit become more important.

What would happen if shareholders demanded that their company of interest must do everything it possibly can to develop green energy?, if they don’t the shareholders (and market) will ditch them thus rendering the business worthless.  Well, the company, one imagines would do everything it can to develop green energy as thats what the shareholders want and thus that must be what they consider value.  Ultimately the shareholders demands and priorities determine the value of a business.

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I wonder what would happen if the alleged monopoly of Google was broken up? So, we now have 5 search engines all attracting an equal number of users.  Is that a good or bad thing?  I can’t help but think good, surely competition is good?  Don’t get me wrong, Google is a great business and provides a great service.  I don’t really count Bing or Yahoo as competition, how can yo when they have less than 15% share of the UK market between them?  I don’t blame Google either, they’ve just been super successful through great management and so good for them.  But is it good for the customer and the user?

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There is a small article in todays Guardian regards Google potentially ‘harming consumers and competitors’.  It is reported that Trip Advisor and Expedia both complained to the FTC.  I haven’t read the report (not sure it is yet published) but I’d love to.  I refer to the travel and leisure world, Google has promoted its own maps, hotel finder, flight finder and more.  The positioning of these tools and products has meant that less space is available to advertise.

This means what was say position 3 in paid search results is now the equivalent of position 7.  So, the cost doesn’t change but the traffic has decreased (less traffic the further down the page ones advert is positioned).  This has the side affect of increasing demand for the top 2 positions.  Now, Adwords is an auction model so more demand equals higher prices.  A price gap has been created between positions 1 and 2 and 3 and lower.  This is a barrier to entry to smaller firms who can’t afford to get to position 1.  Those who can, enjoy that position as there is very little competition.

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The result is more search engines pop up, in this case we’ve seen the rise and rise of META (comparison) sites such as Trivago and Kayak.  It’s not a coincidence Priceline and Expedia purchased these businesses respectively, they’re buying land, search land, search engines built on search engines.  Its probably a good move as not only are the business good at cash generation but even better at data generation giving the owners insights into user behaviour and demand patterns of entire travel markets across many countries.

Back to Google, they realise that search has some competition now so what to do?  maybe put the prices up?  I am certain this is not possible as adwords is an auction model.  So, maybe help companies to efficiently bid and increase traffic/demand thus potentially and indirectly pushing prices up?  seems better but this is cynical.  Or, invest in new ventures and in some cases ‘moonshots’ which will change the world for the better.  Yes, sounds good.

I really do think Google want to help businesses thrive and its far far better to work with Google than not.  Some might find that difficult to swallow due to it’s monopoly status and the fact they’re so powerful but one must think, are they really truly interested in taking me / my business out? I doubt it.

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