Internet Freedom and the Danger of Hidden Monopolies

 

A big takeaway from my b-school economics classes was, whenever possible, strive to position your business as a monopoly.

The reason is simple – profit margins are far higher when you have monopoly power (ex. Microsoft) than when there’s normal competition (ex. automobiles) or worse – sell commodities (ex. paper).

As a citizen, of course, I’m pro-competition. Monopolies – even de facto ones – end up costing consumers far more than they should have to pay in a free market.

What intrigues me most is what I’ll call “hidden monopolies” – particular markets where one entity (or a select few) dominates the market but through several different brands.

Many times in these cases consumers aren’t aware that all the brands are owned by a single entity.

Here are some examples:

Online Travel Agencies

Heard of Expedia Inc. or ever used them to buy a plane ticket or book a hotel reservation?

Did you know that it also owns most of the other booking sites in the space?

Among others, Expedia owns:

  • Travelocity
  • Orbitz,
  • com
  • Hotwire
  • trivago

Sure, there’s competition – Priceline.com owns Kayak.com and restaurant booking site OpenTable, but few consumers are likely aware that the online travel booking sites are overwhelmingly dominated by just two players.

Online Dating Sites

Match.com Monopoly

Match.com owns all of these

When online dating site Match.com went public in 2015, it gave parent company IAC a huge capital boost that helped consolidate its control over the online dating market.

Its brands?

  • Match.com
  • OK Cupid
  • Tinder
  • Our Time

Cereal

Kelloggs vs. General Mills, y’all!

Another lesson from B-School was that cereal’s a commodity product. The expense comes not in design or production of a new cereal, but in distribution – shelf space.

Basically, the profit margin on cereal is so slim that you can’t just launch a new one – you have to launch five or more in order to creditably gain shelf space in the super markets of the world.

General Mills is my favorite. Some of their cereals:

  • Cheerios
  • Chex
  • Lucky Charms
  • Cinnamon Toast Crunch
  • Cocoa Puffs
  • Trix
  • Golden Grahams
  • Kix
  • Cookie Crisp

Sunglasses

Italian company Luxottica runs an eyeglass lens empire that controls not only production but also distribution for more than a quarter of the world’s eyewear.

Sunglass brands it owns include:

  • Oakley
  • Ray-Ban

But it also licenses eyewear for the designer brands of:

  • Giorgio Armani
  • Burberry
  • Chanel
  • Coach
  • DKNY
  • Michael Kors
  • Ralph Lauren
  • Google Glass

Even better, however, is its near stranglehold on eyeglass distribution. Luxottica also owns:

  • Sunglasses Hut
  • LensCrafters
  • Pearle Vision
  • Sears Optical
  • Target Optical
  • Oakley Stores

Diamonds

Diamonds aren’t rare.

It just so happens that, until recently, DeBeers owned nearly all the world’s major diamond mines, and thus was able to fix the price of diamonds and market them as valuable.

The whole diamond engagement ring/wedding ring custom?

It stemmed from a 1947 advertising campaign by DeBeers with the slogan, “A diamond is forever.”

DeBeers Monopoly

In recent years, however, the DeBeers monopoly has been broken. Whereas it controlled 90 percent of the world diamond market in the 1980s, its share is now estimated at around just 35 percent.

The Internet

What made me think about this scary type of monopoly power?

The aftermath of the Charlottesville White Nationalist march, which has led to a nationwide discussion about the appropriate political and moral response to neo-Nazis.

Website domain service provider GoDaddy refused to continue to host Alt-Right news website The Daily Stormer on Monday, after it published a piece criticizing Heather Heyer, who was killed at last week’s rally after she was hit by a car that was driven into a crowd of counter-protesters.

That same day, Google itself de-indexed the site, forcing The Daily Stormer to move to a Russian server.

Russia then suspended the site for “extremist content” that violates the country’s laws against hate speech.

It then moved to underground, accessible on the dark web via Tor.

Cloudflare

But then later on Wednesday the site was gone again, after it was dropped by Cloudflare, a third party security service that protects websites from distributed denial-of-service (DDoS) attacks.

This is where it gets most interesting to me.

Cloudflare isn’t a website hosting service; it simply is the largest protection against cyberattacks via DDoS attacks.

CEO Matthew Prince knew that by refusing to continue to protect The Daily Stormer, he was essentially killing it – because it would immediately be overwhelmed with bot traffic aimed at overwhelming the site and taking it offline (which is what happened).

Prince’s blog post explaining why he took the site off-line is well worth reading, because he acknowledges that no one man (him) or company (his) should have so much power over the internet.

But, in refusing to protect this hateful site, he effectively killed it.

Even used for good, that’s not necessarily a power any one man should have.

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