monopolistic tendencies
Achilles' heel of capitalism has always been its tendency to concentrate wealth into the hands of a few entities. As software is eating the world, this tendency is increasing.
As opposed to their traditional counterparts, software companies are born international and can scale at a much faster pace. Moreover, due to the winner-takes-all dynamics of information economics, it is not easy for new software companies to challenge the incumbents. The result has been a concentration of wealth unseen in history.
Problem 1: Lack of Regulation
Our regulatory frameworks are stuck in a bygone era in which monopoly was defined as charging unjustifiably high prices to consumers while technology giants do the opposite by either charging lower prices (Amazon) or not charging at all (Facebook).
Problem 2: Lack of VCs with Balls
Investors are afraid of funding ambitious startups that want to compete against the giants head on. Instead, they prefer pure blue ocean strategies that can be executed with relatively small budgets. There are much bigger battles waiting to be fought, but the masters are afraid of facing the monsters of their own creation.
In fact, the situation is even worse. Anything within the periphery of the giants scares the shit out of investors. (What if Amazon enters that space? What if Facebook incorporates that as a feature? Lesson: The theoretical real estate around a product can actually be more valuable than the product itself, if you are big enough scare off all the potential intruders.)
Of course, no ocean can stay red forever. Blood eventually diffuses and the ocean returns back to its original color. (i.e. New startups are born once a monopoly dies.) This is a fact all venture capitalists implicitly acknowledge but (due to their nature) they are too selfish to tackle the associated collective action problem.
Solution 1: Death by Gluttony
One solution is keep the status quo dynamics and accelerate them even further. Giants want to feed on new startups? Alright, let’s feed them even more startups! Let’s feed them so fast that they collapse under the weight of their own organizational complexities.
Two troubles with this approach:
Complexity is like an overhead that requires an extra rent to upkeep. A big entity can use its monopoly rents to pay off its complexity rents, like a rich old man refusing to die.
Unlike traditional companies, software giants are quiet capable of managing their own complexities. (After all, most organizational problems are of information theoretic nature.) Some have even managed to essentially transform themselves into healthy closed ecosystems, upholding the law of the survival of the fittest while also enforcing cooperation against the outside world.
Solution 2: Death Match
Let the giants attack each other’s turf. They have sufficient human and financial capital, and ego to deploy the sort of attacks that VCs do not have the balls to enable. (Microsoft attacking Amazon AWS with Azure, Facebook attacking Amazon with Instagram Business, Amazon attacking Google Adwords with Amazon Advertising etc.)
Two troubles with this approach:
It is not difficult for a few giants to implicitly agree on not stepping on each other’s toes that much.
It may take forever for them to launch these attacks since they have so many other opportunities.
Solution 3: Programmed Death
Any entity that becomes big enough sooner or later turns evil. (Remember Google’s “Don’t be evil!” motto?) This is a universal law that holds across many different domains.
Planned obsolescence puts an upper bound on how far an entity can expand in the time dimension. We need something similar in the spatial dimensions. Biology already solved this problem by programming death into cells in such a way that they die before they turn evil and become cancerous. Why not insert similar constraints into the legal foundations of companies?
Two troubles with this approach:
Companies often honestly can not control their growth.
Consumers left out due to growth controls may complain.
