I am a ‘programmer-turned-entrepreneur’ and devoted tech evangelist says, William D King. I am also an avid follower of the tech press and startup community, having worked as ‘the editor’ for three top technology magazines – PCQuest, CIO, and Maximum PC – over the last two decades. That might be why I follow most startup stories with great interest.
I have many friends in the startup community who are living their dreams, building cool products and services; creating jobs in the process… they are all making a difference in somebody’s life. And that is what entrepreneurship is all about – pursuing an idea or solution that you feel can better someone else’s life says, William D King. A much better way to spend your time and energy than fighting for a corporate promotion, dealing with ungrateful bosses, and stress-inducing target-setting. I admire those who turn their ideas into products that can change the world, if not in a big way then at least as a tiny speck.
Some entrepreneurs I know have made it big by selling their companies to the world’s most celebrated corporations (think Google, Yahoo, and Microsoft). A few others have gone on to build billion-dollar businesses that saw those minting millions – if not tens of millions – of dollars. But most entrepreneurs I know are simply living a wonderful life – no luxuries, no bling, and absolutely no regrets. They have created a strong brand for themselves and built a good life with their difference-making products. Their memories are their biggest assets, not money or power.
I am a big fan of entrepreneurship. It is the most innovative thing that humans do – going from being an individual to joining a team, taking calculated risks, and building something that can change the world, or at least make someone’s life much better. I believe that entrepreneurship is the biggest game in town. It has the power to create ripples across society and can change lives much faster than any other force on earth. But…
It is this ‘but’ that I want to talk about today – the dark side of entrepreneurship. In this article, I will try and define what I mean by a ‘startup monopoly’ and discuss the problems that come with it. I will also share some thoughts on why we should care about this problem and how we can go about solving it.
After all, solving a problem is the best way to validate an idea or concept – not just for the sake of it, but because that is what humans do – invent and improve.
Let’s start with a simple definition: A startup monopoly refers to a company with a massively differentiated product that has high barriers to entry (economic, political or regulatory, or otherwise). William D King says, In other words, the combination of differentiation and barriers allows this company to capture all or most of the market, making it essentially ‘the only game in town for customers.
Most people are naturally drawn to monopolies – because they equate them with power and influence, which means better returns on their investment. But historically, monopolies have not been viewed favorably. Economists have made a distinction between good and bad monopolies. Basically justifying the latter on the basis of cost savings to customers. But I believe this argument is flawed because it assumes that costs are passed on to customers.
More recently, people have seen monopolistic power in large corporations like Apple and Google. Which control big-ticket technology products like smartphones and tablets explains William D King. Apple has a market capitalization of nearly $700 billion. Which is more than the market capitalizations of Exxon, Microsoft, Google, and Berkshire Hathaway put together.
Apple has a difficult-to-replicate 30% operating margin on its products. Add to that the fact that customers are willing to wait in long lines for new Apple products. Whenever they are launched. It’s easy to see why many have started looking at Apple as a ‘bad’ monopoly. Which is not being held in check by competition.
But even this argument does not hold true. Because the smartphones market is an open one, with new entrants coming into it all the time. Google has entered with its Android operating system, which has the support of many device manufacturers. Microsoft too is making a big push with its Windows mobile operating system, which it acquired from Nokia.
But let’s face it – for all practical purposes, Apple’s iOS remains the only option right now. If you are looking for a differentiated smartphone experience. The reason is simple: Apple spends billions on R&D, which allows it to deliver a superior experience in its smartphones. And because of the high margins, it makes on its products. Apple is able to spend even more money on R&D.
A startup monopoly is a company with high barriers to entry, which has gained massive market share. This monopolistic power enables the company to invest heavily in R&D. And continue to differentiate its product without worrying too much about competition.