When you lose your monopoly, business has to change

Seth Godin has written a reprise of an old article of his called Monopolies, seven years later, which I heartily recommend.

The recording industry once had an important role that justified its monopoly, as did Broadcast Television stations and other limited outlet industries. But inevitably the monopoly is broken – by legal fiat in some cases, but by technology in a whole lot more cases.

It’s hard for a monopolist to give up the position because monopolies are very, very profitable. Sad to think that a company that was once raking in multiple millions of dollars every year, for many years, suddenly has to compete on the quality of their offering in a completely changed market where they are no longer a monopoly. This is why the music industry (concert tickets, merchandise etc) is doing very well while the recorded disc business is slowly fading away.

Some of the time monopolists don’t realize what business it is that they are in. Railroad companies apparently thought they were in the railroad business, rather than the transport business, so when their long-haul monopoly was threatened by trucking, they didn’t respond fast enough, and faded in importance to society. Record companies think they’re in the disc business, when they’re really in a promotional business. That’s probably the only role left.

Other times, industries lose relevance because technologies bypass them. This is the position that broadcasters and cable channels are facing right now: they had an effective monopoly (mandated by the government in the case of broadcasters) because they had access to limited resources – broadcast licenses and access to cable distribution. However when we don’t need those limited resources to get entertainment “out there” to the viewer, what role is left? Finance company? There’s lots of competition there.

And finally, industries lose out when they focus on the wrong customer. Broadcasters and cable programmers have the wrong focus. They believe that their customer is the advertiser, and they are correct in an advertising supported entertainment model. However, the producer’s customer is the viewer and is often in conflict with the broadcaster’s customer.

Losing a monopoly is inevitable. You can avoid fading into irrelevance by focusing on the core value of your business to the customers and to keep focused on the customer’s needs. Unfortunately, the more broadcasters do that, the faster they’ll fade from relevance because they are unnecessary in an unmediated marketplace.

2 thoughts on “When you lose your monopoly, business has to change”

  1. So true Philip,
    and if I can add to this, in my experience the biggest problems with companies that have become comfortable with a monopolistic position, is the reluctance of upper management to concede to the fact that foundations of the company on which the monopolistic business is based on, are crumbling away.

    An example of this.
    Many years ago I founded the SGI user group here in Melbourne Australia. We would come together and go over the new technologies and possibilities that 3D would bring. And how the $250,000 reality engine systems of the day would become a big part of the computer and wider industries.

    After a number of meetings, SGI became very involved, sending engineers and management people to take part.

    While working with them, it became apparent that they considered SGI was “King of High End Computing”. Many engineers stated they would never sale a system under $50,000.
    Our group voiced the opinion that 3D graphics has to go main stream. Dominance grows from below, not from the top. I.e. A graphics card for $100 in every computer was the future (Which it is now). Our ideas revolved around this fact. It was this ubiquity that enables 3D graphics to have an effect on everyone.

    SGI engineers and management where completely against this. This dismayed me and others in the group. The group basically lost interest and was no more. The internal culture went completely against the passion that was in the hearts and minds of the group members.

    SGI had the dominance of 3D handed to them, but to them it was beneath them.

    Then of course, a group of engineers left SGI and formed Nvidia.

    The monopolistic culture of SGI held fast and, as we all know, it eventually went down chapter 11. Taking a lot of people’s money with them. Apart from the upper managements opinion that they where the aristocracy.

    This is one of many lesions I have learned about monopolistic practices and how the industry deals with them. One of the hardest areas for a monopolistic company is changing the culture of upper management.

    Two common methods exist.
    1. Fire all upper management and start a fresh. (Usually very hard as they usually have large ownership.)
    2. Purchase embryonic companies with new minds and culture suitable for the future of that industry. Then get it ready to replace the Old. (Philip, you’re so in tune with this one.. hehe)

    James

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