On network effects and information monopolies

Odd article from Tim Wu in WSJ today, in which he posits that the web has tended to monopoly in various key categories - Google in search, Facebook in social, eBay in marketplaces, Amazon in retail etc. 

There are two odd things about this. First, the Internet does no such thing. Online, empires rise and fall with terrifying rapidity. The social networking space that today is allegedly owned by Facebook was only yesterday owned by MySpace, and before that Friendster, Livejournal, Classmates, Reunion and Friendsreunited (see XKCD doing an Information-is-beautiful-esque take on the subject here and here).

Network effect businesses (which is what Tim is talking about here) are defensible because of the circularity they engender; but they are also vulnerable to the users all decamping en masse to the next big thing. I well remember the first time my online social circle all moved networking platform, from the Monochrome BBS to Livejournal - traumatic at the time, but the same circularity that kept everyone there meant that as soon as the exodus had begun everyone left on practically the same day. Eric Shonfeld puts it best:

"If there is one thing that locks us in, it is ourselves. It is the network effects at play across the Internet which help build up these natural monopolies faster than they otherwise would."

And yet it is also ourselves that make it easy to leave - coordination regularly achieves this, as we have seen time and again as people abandon old networks for new. Only today Alexis Tsotis declared the telephone - the ultimate social network of the C20th - dead. 

The second odd thing is that really the Internet admits of considerable regional and topical diversity.

Sure, Facebook is the dominant platform for social networking; except in Japan, Brazil, India and Holland where it's Mixi, Orkut, Orkut again and Hyves; except for work, where it's LinkedIn (and once Xanga and eCademy, another change); except for photos, where it's Flickr; except for news, where it's Digg and Reddit and Fark and 4chan; except for local community, where it's a host of independent blogs, bulletin boards, forums and networks.

World of Warcraft is another example (not cited in Wu's article) where a single provider is regularly mentioned as having captured the lion's share of a large and valuable market - in this case the multi-billion-dollar MMORPG space - and is now expected to lock in its players indefinitely as its larger audience allows it to raise so much more money than its competitors that its offering is simply orders of magnitude more impressive and enjoyable. And yet...it requires an almost willfully disingenuous narrowing of the definition of the market in which Warcraft operates for this to look like a monopoly. Where Warcraft is a Tolkien-esque fantasy, EVE online entertains a large, loyal following in a similar SF-themed universe. More to the point, where Warcraft sits with 12m players Guild Wars (6m), Lineage (1.3m) and Runescape (10m) continue to operate, and that's before you start counting, at a slight tangent, the 13m Call of Duty players - in reality another example of extensive market diversity.  

eBay owns the marketplace space; except in tickets, where it had to buy its way in to a highly fragmented marketplace; except in automotive where it sits a distant second to domestic alternatives in key markets; and except in any category where it competes with free offerings from Craig, Gumtree et al.

Amazon doesn't even enjoy a monopoly in its own original core category of books, with Abebooks providing very healthy competition as the second-hand marketplace of choice. (Update: in comments, James MacAonghus points out that Amazon has bought Abe, which I didn't know.)

Google, for all that it owns search, had to buy its way into the key video category for $1.65bn, is nowhere in music search and is competing for TV and film searches with torrent sites like PirateBay.

Finally, numerous of the most valuable online markets consistently resist monopoly: online dating continues to enjoy considerable diversity; residential sales and lettings in almost every territory remains a multi-player market; travel and holidays resist monopoly by any one provider; online recruitment has thrown up occasional monopolies at the region and category level but nothing that owns the entire space; and of course, famously, news used to tend to monopoly offline and now it's online does not. Just in the media/tech niche I can see at a glance the most glorious range and diversity of news sources, opinions and revelations that we have ever known from a glance at Techmeme. Freedom of the press, that used to belong to anyone who owned one, now belongs to everyone. So monopolies rise, and so monopolies fall. 

(Picture from mike_fleming on Flickr)