The Monopoly Teeter-Totter

I'd been working for a dominant company for a decade but had never heard anyone talk about being monopolistic… until I joined a startup. One of my board members wanted to create an "unfair advantage" in the marketplace.

I was slack-jawed.

There are lessons for both startups and tech giants from my reaction.

The truth is that everyone wants an unfair advantage, but they are hard to get and an unfair advantage is rare and hard-earned. The advantage could be unique technology, walled access to a market,  unmatchable pricing, or any number of other things that cannot be touched by competition. Monopolies often garner many of these advantages.

Even better, nobody cares about an unfair advantage for a startup. Many $1M companies are monopolies, but monopolies of a market that nobody cares about. As a result many companies are BUILT to be monopolies but never achieve greatness because their narrow market never blossoms.

The issue is when companies get big enough that their market matters - to an important market segment, to powerful people, to the stock market or the global economy.

When I joined Intel in the early 90s, it wasn't market dominant. They held a significant portion of the growing PC market, but it wasn’t a household name (my parent had never heard of Intel when I joined) and had plenty of competition nipping at it's heels. When I left (the first time) a decade later, it had "significant market share in many markets", at least that's how we were taught to discuss it in the annual anti-trust training class. Realistically, that meant 80-90% market share in desktops, laptops, and servers - basically the entire computing market of the 1990s. Dominant.

That was EARNED market share. Intel had innovated, driven the market place, were at least a generation ahead of competition and were pulling farther ahead every year. It was a money machine that spent into Moore's Law, the insight that one of the company's founders had observed in 1965 that the number of transistors on the same size of silicon chip roughly doubled every 2 years. By noting that it COULD BE DONE, Intel spent toward the goal of MAKING IT HAPPEN every 2 years, and the rest of the industry was playing catch-up. Intel had invented the microprocessor and popularized it with the best manufacturing, designs, engineers, marketers, and management. They were hungry and aggressive in technology and business, and won business much more than they lost in a market they'd created.

We would never say it, but it was a monopoly, with an unfair advantage in the marketplace.

Not once in my 15 years at Intel through 2 rotations, from low-level design meetings to executive staff to customer discussions, did I hear anyone use monopolistic language. NEVER.

I was in plenty of meetings with other tech companies where I heard executives use phrases like "the reason the web is so slow is that we don't own it yet", but not from Intel employees. The result is that despite many investigations, Intel was seldom found infringing with significant "abuse of dominant market position" until the end of my tenure with the company (when the wheels had already started falling off the car, long after it's high-growth years).

It's comical to call Intel a monopoly today, but that's more a result of the innovator's dilemma (see my article on this subject "Only the Paranoid" here: bit.ly/3AXSAZu) than any government intervention for monopolistic practices. 

Meanwhile Google was just decisively found guilty of monopolistic practices (https://nyti.ms/47y8sOB). While dominant in the search and online advertising markets, they've built a moat that allows them to control pricing and restrain competition. If you want access to web users, you need Google and they've locked in that relationship.

Nobody cared when Google slowly wrestled away market share from market-dominant Yahoo! and eventually all of the other crawling algorithmic search engines. Google had a better product, they were willing to pay to play as they grew, and nobody cared since the market was small and regulators didn’t understand it. One could argue that they should have been held accountable a decade ago, but the wheels of justice sometimes grind slowly, especially in the free-wheeling capitalist USA. It's hard to argue that Google is a monopoly today in a multi-trillion-dollar market that affects the global economy.

Is the lesson to be conservative in adopting aggressive business practices? Hardly.

Flash back to my startup (around 2001), and my fear of being a monopoly, as inherited from Intel training. It took a board member to remind me that I was being far too conservative on the business side. I'd been striving for a technology lead, but had ignored some of the other marketplace issues that ensure success. Assuming that a startup is actually trying to do something new, it needs to build a market where none exists, against all odds, and in doing so building a lead that others will follow.

Every startup should strive to build that kind of unfair advantage.

The trick is knowing when to start flipping the balance on that teeter-totter. At the startup stage, anything (legal) goes, even things like predatory pricing, since 100% market share in a market worth $0 is laughable, even if you have lots of competitors. If you want to lose money on every solar-powered whoopee cushion that you sell, go nuts. Nobody cares.

When it's clear that your market is real and you have serious revenues, it's time to get serious about anti-trust - something Google apparently never did sufficiently. While I'm using Google as an example, they are certainly not alone in this regard, as indicated by lawsuits against Meta and Apple.

Competition made Intel far better. In my tenure there, I'd see them get sloppy with too much market share, opening cracks to others to come in. The Apple-IBM-Motorola PowerPC attempt is a great example in which Intel pushed their technology and market leadership hard and unequivocally won.

Today, many see NVidia as unstoppable, but their market position is shockingly close to Intel's in the 90s. NVidia didn't build the architecture for AI, they've built a market around their architecture for AI with hard work using their "unfair advantages" in technology to jump into market opportunity. Everyone is following, but someone will eventually present a strong alternative and, like Intel, they'll either rise or fall.

Whether a large or small company, monopolistic behavior is not a secure position forever. Just ask Intel... or the robber barons of the 19th century.

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