People talk a lot about “Internet monopolies like Google and Facebook”, as though they are the same kind of thing. Even as astute a commentator as Tim Harford (alias “The Undercover Economist”) lumps them together in statements like “Google dominates search; Facebook is the Goliath of social media; Amazon rules online retail”.
But these “Internet monopolies” actually fall into completely different categories.
Google dominates search because it offers the best general-purpose search engine currently on the market.
But Facebook is by no means an objectively well-designed web-app. It dominates social media not because of any inherent quality, but because all your friends are on it. You could launch an objectively better social networking site tomorrow, and no-one would come. (No doubt many startups have just done that, most likely even in the last week.) There’s no point being on, say, Diaspora, despite its intrinsically superior model — because the reason you want to be on a social network is to see all your friends’ photos and to argue about politics with your mum. And they’re all on Facebook.
Similarly, eBay’s website it pretty horrible, but it has online auctions completely sewn up. Why would you sell anywhere else, when that’s where all the buyers are? And why would you buy from any other auction site when all the sellers are on eBay?
Both Facebook and eBay dominate their space not because they do what they do well, but because of network effects. They don’t even do what they do particularly well — because they don’t have to.
People sometimes talk as though Google has an unbreakable iron grip on Web search. But I’m old enough to remember when people used to talk that way about AltaVista. Google swept them away into irrelevance simply by offering a better service — and the moment someone offers a better service than Google, the same will happen to them.You don’t use Google because all your friends do, but because it does a good job. To stay at the top of the tree, Google has to stay at the top of its game.
Amazon is somewhere in between. I can buy books elsewhere, but I admit I seldom do because its prices are low and its service good. By becoming a marketplace for third-party sellers, it’s getting into something like eBay territory, and as it gets better at this so it becomes harder for vendors not to have a presence there. I know that my own book has sold dismally in hardcopy, due I think to not being on Amazon. People just can’t be bothered making a Lulu account to buy a single book. (The e-book has done slow but fairly respectable business at Amazon.)
I fear Amazon’s trajectory. If it corners its market in the way it seems to be approaching, then like Facebook and eBay it will lose its incentive to actually be good. If it becomes the only game in town we will all — vendors and buyers — be poorer for it.