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Monopolies are actually even more likely in highly networked markets like the online world. The dark side of network effects is that rich nodes get richer. Metcalfe’s law, which states that the value of a network increases in proportion to the square of connections, creates winner-take-all markets, where the gap between the number one and number two players is typically large and growing.
But the Web is now 18 years old. It has reached adulthood. An entire generation has grown up in front of a browser. The exploration of a new world has turned into business as usual. We get the Web. It’s part of our life. And we just want to use the services that make our life better. Our appetite for discovery slows as our familiarity with the status quo grows. Blame human nature. As much as we intellectually appreciate openness, at the end of the day we favor the easiest path. We’ll pay for convenience and reliability, which is why iTunes can sell songs for 99 cents despite the fact that they are out there, somewhere, in some form, for free. When you are young, you have more time than money, and LimeWire is worth the hassle. As you get older, you have more money than time. The iTunes toll is a small price to pay for the simplicity of just getting what you want. The more Facebook becomes part of your life, the more locked in you become. Artificial scarcity is the natural goal of the profit-seeking. |
What’s more, there was the additionally sobering and confounding fact that an online consumer continued to be worth significantly less than an offline one. For a while, this was seen as inevitable right-sizing: Because everything online could be tracked, advertisers no longer had to pay to reach readers who never saw their ads. You paid for what you got. Unfortunately, what you got wasn’t much. Consumers weren’t motivated by display ads, as evidenced by the share of the online audience that bothered to click on them. (According to a 2009 comScore study, only 16 percent of users ever click on an ad, and 8 percent of users accounted for 85 percent of all clicks.) The Web might generate some clicks here and there, but you had to aggregate millions and millions of them to make any money (which is what Google, and basically nobody else, was able to do). And the Web almost perversely discouraged the kind of systematized, coordinated, focused attention upon which brands are built — the prime, or at least most lucrative, function of media. What’s more, this medium rendered powerless the marketers and agencies that might have been able to turn this chaotic mess into an effective selling tool — the same marketers and professional salespeople who created the formats (the variety shows, the 30- second spots, the soap operas) that worked so well in television and radio. Advertising powerhouse WPP, for instance, with its colossal network of marketing firms — the same firms that had shaped traditional media by matching content with ads that moved the nation — may still represent a large share of Google’s revenue, but it pales next to the greater population of individual sellers that use Google’s AdWords and AdSense programs. |
So what took so long? Why wasn’t the Web colonized by monopolists a decade ago? Because it was in its adolescence then, still innovating quickly with a fresh and growing population of users always looking for something new. Network-driven domination was short-lived. Friendster got huge while social networking was in its infancy, and fickle consumers were still keen to experiment with the next new thing. They found another shiny service and