Tim Wu has an excellent article about how the free-wheeling, free-market style of the Internet has led, for the most part, to natural monopolies.
The Internet has long been held up as a model for what the free market is supposed to look like—competition in its purest form. So why does it look increasingly like a Monopoly board? Most of the major sectors today are controlled by one dominant company or an oligopoly. Google “owns” search; Facebook, social networking; eBay rules auctions; Apple dominates online content delivery; Amazon, retail; and so on.
There are digital Kashmirs, disputed territories that remain anyone’s game, like digital publishing. But the dominions of major firms have enjoyed surprisingly secure borders over the last five years, their core markets secure. Microsoft’s Bing, launched last year by a giant with $40 billion in cash on hand, has captured a mere 3.25% of query volume (Google retains 83%). Still, no one expects Google Buzz to seriously encroach on Facebook’s market, or, for that matter, Skype to take over from Twitter. Though the border incursions do keep dominant firms on their toes, they have largely foundered as business ventures.
The rise of the app (a dedicated program that runs on a mobile device or Facebook) may seem to challenge the neat sorting of functions among a handful of firms, but even this development is part of the larger trend. To stay alive, all apps must secure a place on a monopolist’s platform, thus strengthening the monopolist’s market dominance.
Today’s Internet borders will probably change eventually, especially as new markets appear. But it’s hard to avoid the conclusion that we are living in an age of large information monopolies. Could it be that the free market on the Internet actually tends toward monopolies? Could it even be that demand, of all things, is actually winnowing the online free market—that Americans, so diverse and individualistic, actually love these monopolies?