Facebook’s and eBay’s monopolies are very different from, and scarier than, Google’s. But what about Amazon?

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.

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9 responses to “Facebook’s and eBay’s monopolies are very different from, and scarier than, Google’s. But what about Amazon?

  1. Well said and thought provoking, I just use Amazon, Facebook and Google without thinking about it but they are comprehensive, efficient and user friendly. So we all fall into the same trap. I’m SO old I remember using s search engine called Jeeves.!!

  2. If Google has a monopoly to worry about, it’s on internet advertising, not on search, per se.

  3. Something that worries me is that most of the really big internet services are based in the U.S., and as is relevant today, they all answer to U.S. three-letter agencies with their made-up court orders to acquire whatever information they want, for whatever purpose.

    Whether it’s buying, selling, auctioning, hosting files, posting pictures and videos, or debating politics, the U.S. has a monopoly on these internet-based services and the consequential collection of personal data.

  4. That’s a legitimate concern, Robert; but I think orthogonal to what I’m discussing here. If you are worried about Google disclosing your search history to the NSA — as you might reasonably be — nothing stops you from using DuckDuckGo instead. But if you’re worried about Facebook disclosing your private group-chat history to the NSA, there’s not much you can do about that if all the people you want to talk to are on Facebook.

  5. Pingback: Interesting Links for 11-07-2017 | Made from Truth and Lies

  6. 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.

    I don’t think this is true. Amazon, as a retailer, will always be vulnerable to being undercut by someone with lower prices or faster service. Nobody has much commitment to the shop they buy things from; nobody cares whether their friend all shop at the same shop, so it’s not like Facebook (though I can’t really talk much about the Face-book, as I have not got an account there so have no personal experience).

    And it knows it, too, which is why Amazon hardly makes any profit, instead re-investing almost all its revenue into improving its warehousing and distribution networks, to make sure that it gains as many economies of scale as it can in order to keep its prices low and its service quick.

    Some people have expressed fears about Amazon driving its competitors out of business using ‘predatory pricing’, only to then abuse its monopoly position by raising prices; I’m not afraid of that, because there’s no instance I’ve ever seen of it actually working, because while the first stage, driving the competition out of business, is easy enough if you have the cash reserves, in order for the second stage (abusing the monopoly) to work you would have to raise your prices so much that it becomes both possible and highly lucrative to undercut you — which is what therefore inevitably happens.

  7. I think Amazon is farther down that path than you may realize, at least in the US. Yes, Amazon aggressively prices some things, and often has reasonable prices, but for a number of years now chances are very good that you can find the same or better price elsewhere online. But due to Amazon’s constant price fluctuations and reputation for low prices, people often don’t bother looking elsewhere. And with Amazon Prime, now people have an incentive NOT to look elsewhere, because they have to justify having paid for Prime.

    You specifically mention Amazon for books, but they’re no longer really a bookstore. For electronics and various forms of media, they are the go-to store for everyone I know. I know several people who now do all of their shopping (including all of their grocery shopping) at Amazon, with the exception of a few things that Amazon hasn’t quite figured out how to sell yet (like gasoline). Physical stores have been going out of business, because they can’t match Amazon’s selection and economies of scale. Consumers who are willing to wait a day or two to receive their purchases may go to the store to see the product in person, but often end up buying from Amazon rather than the store.

    Amazon has also become the go-to place for product reviews, largely due to the network effect. They also have another network advantage, in the form of their physical distribution network. Trying to build a physical network that rivals theirs is a huge barrier to entry for their competitors.

    Saying that Google could be bested in seems a bit like sidestepping the question. Yes someone else could build a better engine, and some people would switch to using that because there isn’t as much of a network effect, but Google does have a weaker network effect in search: every search result link that is clicked or skipped is feedback to them about how well their search was done, so they are getting better training data on search that anyone else could get. Google isn’t a search company, they are a data company. They have the world’s search history, emails, pictures, documents, spreadsheets, phone calls, etc. No one has more comprehensive data on data, giving them a huge advantage in any fields that benefit from large data sets. Their network effect is that they have data that allows them to figure things out better/faster/more easily than the competition, which causes people to use them rather than the competition, which provides them with more data, etc. Google’s monopoly isn’t on search; it’s on the world’s data.

  8. Mrs Marion Taylor

    Making a purchase on Amazon is too easy. “Buy with one Click”.

  9. Making a purchase on Amazon is too easy. “Buy with one Click”.

    You don’t have to click that button. I never do.

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