A MySpace Monopoly? lol
Recently, I came across an article titled, “MySpace Is A Natural Monopoly,” written on January 17, 2007. The article is a great reminder that present concerns aren’t always justified and calls for government regulation shouldn’t be our first response. The author made the same arguments about MySpace that some are currently making regarding the tech platforms today. As you can imagine, there are a couple quotes from the article that didn’t age so well.
Here’s one: “…only MySpace has a substantial base of unique users. Seventy percent of Yahoo 360 users, for example, also use other social networking sites — MySpace in particular. Ditto for Facebook, Windows Live Spaces and Friendster…This presents an obvious, long-term business challenge to the competitors. If they cannot build up a large base of unique users, they will always be on MySpace’s periphery.”
Here’s another: “…economics suggests that even if the cost of having multiple networks is small, there will be just a few major players in the end. Other sites will be condemned to niche markets and subsets while MySpace becomes the only site of significance…”
For the conclusion: “All of this is to say MySpace looks like a natural monopoly and, judging from usage patterns, certainly appears to be behaving like a natural monopoly.”
Building on this article, another came out from The Guardian in 2007, titled, “Will MySpace ever lose its monopoly?” MySpace once had 73.4 percent of all social media traffic. Then…Facebook.
What’s the point?
In 2019, the Cato Institute published a paper citing the economist Joseph Schumpeter—who coined the phrase, “creative destruction”—who warned against an irrational fear of monopolies and believed that innovation from new companies puts a check on larger companies’ powers. He believed that businesses had a life cycle: they would innovate, grow their business, gain market share, and then relinquish market share when new innovations came along. Windows Live Spaces and Friendster didn’t take down MySpace, but Facebook did. Now Facebook faces competition from TikTok and the general social media stratosphere.
The paper then shows case studies of several companies once considered “monopolies” who have since lost significant market share. Many at a very rapid pace.
Remember Nokia? In 2007, they had more than one billion customers and forty percent market share. Then the iPhone came along.
Apples iTunes once dominated the online music space, and now it competes with Amazon, Pandora, Spotify, YouTube, and others. Then there’s Kodak (remember those cameras?), Xerox, Netscape (that was a browser), Yahoo, and AOL (remember instant messenger?).
Xerox once had a dominant market share, and “xeroxing” was a verb in the same way that “google” was. Then competitors entered the market with superior, better priced products. Then, of course, came along phones, home printers, etc.
In all of these cases, the companies grew rapidly through innovation, but were disrupted by newer innovation. Whenever they grew and gained market share, there was concern that they would stay that way forever. But history shows that simply isn’t the case.
There’s no reason to believe the present market share held by large companies—whether tech or not—will hold steady indefinitely. Especially not in a free market. Yet fear of entrenched monopolies incites people to ask government to regulate such companies. Yet, we shouldn’t let fear of monopolistic entrenchment cause us to ask for government regulation. There are a couple reasons why.
First, all these innovations had a great outcome for the customers. The camera on our phone far surpasses the first camera Kodak produced. These innovations have enhanced our lives. Moreover, they’ve also driven down prices for everyone.
Second, asking the government to step in and regulate will have severe unintended consequences that will send a chilling effect throughout the economy.
Instead, let’s keep the market free.