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Friday, 4 April 2008

Those at the top of the virtual ladder

The internet is sometimes said to open up a whole new world of competition, where consumers have the ability to choose the best products for them at the best prices in the whole world. New businesses have flourished and consumers have benefited from the stiff competition, forcing companies to be the best they possibly can be for their customers.

But is this really happening? More and more, entire global markets are becoming dominated by one large company:
"Google" - web searches
"e-bay" - web auctions
"Amazon" - books, and debatably other products
"Tomtom" - satnavs
"wikipedia" - knowledge
"Windows/Microsoft" - operating systems and many programs
"BBC" - news
"iPod" - MP3 players

The more attached a system is to the internet, the more likely there is to be a monopoly. For example, Tomtom relies on the internet for updates to maps and things, and their monopoly is very strong. MP3 players are less dominated by iPod, and we notice that many people buy their MP3 players from shops so they are not as tied to the internet. Price comparison websites are not controlled by a single company, but they advertise so much on television that they cannot be seen as existing purely online either. At the other end, Spybot Search and Destroy is certainly the only anti-spyware software I can name, and that's entirely an online phenomenon.

According to the tiny amount of economics I learned at school, monopolies are a BAD thing. Well, if a monopoly is maintained or has the potential to be maintained by "barriers to entry" into the market, then it is, since it prevents competitors from competing fairly.

So the question is, why do these companies have a monopoly? Is it because they provide the best service, products and price, or is it because the competition is suppressed somehow? Of course it's a combination. All of the companies above produce excellent products and services, but there are barriers to the competition too.

Since the internet is a new world, people are not aware of the competition. There is so much advertising for small companies, inefficient companies, rubbish companies that it is impossible to work out what is a good deal. If you order a CD from a random seller, will it ever arrive, will it be in the condition they say? Questions like this put people off trying out websites and companies who they don't know. In addition, a visit to an unknown website may result in you acquiring a virus and still not acquiring the product you're looking for.

Search engines are no help either. Top of the list is always the same business, and everyone buys from that company. It makes sense, it's quicker, easier and safer to do that. But it stifles competition, because if you're company number 2 and you're unknown, nobody will even see your products, unless they ignore search result 1 (even though it came up first and is therefore more popular) and visit your website instead. These are huge barriers to entry into the markets. It's very difficult for anyone to come into that.

At the moment, I don't see it as a problem. As I say, I think the monopoly companies in general offer good service, value for money and products. However, with these barriers existing, it does not have to stay like that. Most of these companies have only existed for ten years, so they haven't had the chance to go off the boil. But they will, all companies do, especially when they don't have the competition to drive them forward. And then the customers will suffer.

I'd like to see specialised "internet malls" set up, with the top ten search results for e.g. books, all equally advertised. That might encourage people to look around and choose based on getting the best deal rather than looking for the familiar face. It's not a good idea, but it's something and we need to do something. At the moment, people still shop on the high streets, but as we buy more online, the problems of internet monopolies will become more apparent. A solution must be found.

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