Internet and the era of monopolies

From 1911, year in which the US Supreme Court declared the Standard Oil group to be a monopoly and break it up into 34 independent companies, the biggest two being Exxon and Mobil, governments have been struggling against monopolies in order to prevent any company from abusing of a dominant position. Remember that by 1904, the Standard Oil controlled 91% of the refined oil flows in the United States and converted John D. Rockefeller in what is considered the richest man ever!

More recently, in Western countries, there is no case of any government breaking up a monopoly or a large company to avoid a dominant position in a market. Companies like Microsoft have been sued and had to pay penalties but it is far different from a break up. It seems that break ups are simply no more politically aceptables.

On the contraty, in some industries like banking or telecomunication, we can reasonnably think that (public) regulation, supported by industry lobbyists, has been converted into a barrier to new entrants and to innovation and has converted these industries in oligopolies. So, we are not speaking about monopolies but we are not so far. In the UK, the 4 leading banks have a consolidated market share of around 85%. In most European countries, there is only 3 or 4 telecom companies acting as a true oligopoly, offering the same products, same prices, bad customer support, etc. Thanks Free Telecom for starting changing the landscape in France.

On the other side, the Internet is a young industry in which innovation and creative destruction are a natural way to prevent the development of monopolies over the long run. Even if companies like Google, Facebook or Amazon can be considered monopolies, they are not selling first necessity products like in the case of the Standard Oil.

But the main risk with the Internet is speed. The Standard Oil was 41 years old when the monopoly was broken up and the struggle with the government last almost 10 years. In the Internet, what will happen when a company providing a first necessity product or service, or something similar, will convert into a true monopoly at the speed of light? Governments have prooved that they may forbid any merger or acquisition leading to a monopoly but that they are no more able to break up a monopoly based on organic growth. 

As an Internet entrepreneur, I still have a lot to learn, but there is something I have understood from years: in the Internet, any smart entrepreneur wants to build a global monopoly and leading Venture Capitalists, usually American, only want to fund start-ups that have a chance to convert one day into a monopoly... even if they never publicly speak about it. That is the main reason why Venture Capitalists are keen to invest huge amounts of cash in start-ups with sometimes no revenues, no business model but a potential dominant position over the long run.

Source: Wikipedia, http://www.publications.parliament.uk/pa/cm201011/cmselect/cmtreasy/612/61204.htm

The financial crisis for dummies: how marketing killed us!

Many papers and reports have been written in the last 4 years about the financial crisis. Almost everyone has his own opinion. Nevertheless, as always, experts are trying to find complex reasons and solutions to explain how the financial system bankrupted and how it has to be fixed. My opinion is that the financial crisis is the consequence of one main reason: a never-ending story of over-consumption for 30 years. This phenomenon of over-consumption has been promoted by 3 main channels:

1.  Advertising everywhere at any time: Web, TV, Radio, Newspapers, Streets, Roads, Airports, Stations, even Schools…
2. A highly materialistic way-of-life promoted by famous (and not so famous) people: sport and movie stars, politicians.
3. A sensation of easy and fast glory promoted through stupid TV programs: Big Brother, American Idol...

When I was a child, every boy wanted to be a policeman, a firefighter or something similar. Nowadays, as a little boy said in the press recently, kids want to be football players because they are rich and f..k a lot of models!

In developed countries, until the 70’s, we were living in a world in which citizens existed by themselves: “I think I am”. From the 80’s, the hyper and fast development of what we can name marketing, started promoting a world in which you are what you consume: “I (over) buy I am”. This is definitely the point of inflexion. In the 21^st century, people in developed countries can still easily afford their basic needs but could hardly afford their superficial ones. Who really need a new iPhone every 6 months to be happy? That is when greedy bankers arrive and find “new” ways to finance over-consumption and over-spending with risky products that first looked safe. The same phenomenon occurs among politicians who are keen to find new ways to finance their public overspending in order to get votes.

After years of over-consumption and over-spending, the system finally bankrupted and is still almost bankrupt. On the long-run, you can definitely not spend more than you earn.

In conclusion, the most effective solution to the crisis would be a total change of mind of the developed world in which people stop being consumers to become citizens. As always, culture is a key variable to explain problems and fix them.

But on the other side of the world, developing countries like China, India or Brazil are so influenced by the western culture that they are also engaging in this never ending story of over-consumption. China has probably created the largest real estate bubble of the history of mankind. Be prepared for the burst…