You hear the word "monopoly" thrown around a lot these days, especially about Google and Apple.
After Google's bid to acquire Motorola, the integration of Google+ signals in Google Search and the announcement of Google's consolidation of privacy policies and data gathering across Google services, critics have been saying Google has a monopoly in the search market.
Consumer Watchdog, referring to Google, said: "The Internet is too important to allow an unregulated monopolist to dominate it."
U.S. Rep. Marsha Blackburn (R-Tenn.) said this week that "Google's move to eradicate consumer choice all together across their various platforms raises additional questions about how the company's monopoly power might hurt competition."
And after Apple last week announced new software, services and initiatives related to education and electronic publishing, critics of that company have used the word "monopoly" to characterize Apple's position in the tablet market.
OS News asked: "What about Apple using its tablet monopoly to push into textbooks and locking students in?"
Last weekend, I appeared on Leo Laporte's netcast "This Week in Tech," in which fellow guest and columnist Ed Bott said that just as Microsoft used its operating systems monopoly with Windows to make Internet Explorer the leading web browser, Apple is "leveraging their dominant position in the tablet marketplace with the iPad and then creating a proprietary, incompatible version of an open industry standard" with iBooks Author and iBooks 2.
The "monopoly" accusation is made freely. But is it true? Are Google and Apple actually "monopolies"?
What is a monopoly, anyway?
What is a monopoly, anyway?
Economists view any given market as ranging somewhere between two theoretical extremes. At one end of the spectrum is something called "perfect competition," which involves, by definition, a huge number of companies selling into that market.
At the other end of the spectrum is "monopoly," for which there are three criteria:
1. There is only one company in the market.
2. There is no close substitute for the product or service offered by that company.
3. Barriers exist for other companies to enter the market.
The idea here is that with perfect competition and many companies, no one company has control over the price it can charge. Prices are determined by the market.
In a market controlled by a monopoly, that one company can determine prices because of the three criteria listed.
That definition alone technically invalidates everyone who says Google or Apple is a monopoly. That these companies are monopolies is obviously, literally and provably false.
But calling either Google or Apple a "monopoly" is just a lazy exaggeration to imply that it has a "monopolistic" position in the market, which means that although it's not actually a monopoly, it's close enough to be deemed "anticompetitive."
Does Google have monopoly power in search?
Time magazine Policy & Law columnist Jerry Brito wrote recently that Google
can't be charged with violating antitrust law, mainly because it has only 65% market share for search.
Brito didn't specify his source for that number, but it's likely he was referring to comScore rankings, which count the number of queries conducted by users, rather than the number of users or the number of advertising dollars.
One underappreciated dimension of the M word when applied to Google is that it should not be about the percentage of queries, or even search users, who are not the customers. It's about search advertising. That's the "market." That's where the money is.
Markets are correctly measured in dollars, not in the nebulous currency of "queries." A good search engine reduces the number of queries for each user, anyway.
It turns out that Google owns more than 80% of the search engine advertising revenue market.
If you choose to segregate mobile search engine advertising, Google has something close to a perfect monopoly: about 98%.
So Google may meet the first criterion for a monopolistic company by today's legal standards.
On the other two criteria, however, Google fails the monopoly test.
For example, there are obvious substitutes for Google, including Bing and a few others. And these alternatives are easily embraced. Just type the URL, or the name of the search engine into Google, and you've switched. There are zero significant barriers to switching to the competition.
There are barriers for other companies to enter the market, but they appear surmountable. For example, a search engine called Blekko launched recently. And one called WireDoo will soon be launched.
It's not theoretical. Companies are in fact entering the search engine market and competing with Google.
To me, there's no question: Google does not have monopoly power in search -- not literally, not legally and not actually.
Does Apple have monopoly power in tablets?
The claims against Apple are more easily dismissed than those against Google.
First, Apple's share in tablets has been well below the 75% threshold for some time, and now hovers around 57% or 58%. And the overall trend is toward Android tablets gaining market share at the expense of Apple, so Apple's share is declining.
The fact that companies are selling touch tablets at $200 and below demonstrates that Apple is not in control of pricing. Literally dozens of new entrants into the market prove there are no insurmountable barriers to entry.
Any claims that Apple enjoys a monopolistic position in tablets are unsupportable and directly contradict the facts.
But that doesn't settle it
According to my own reasoning, neither Google nor Apple should be considered a monopoly or even monopolistic.
But I'm not in the FTC. And I'm not a judge. Such determinations are at least partly governed by politics, public opinion, the influence of competitors and other factors that have little to do with law, facts or reason.
Some court may declare at some point that one or both of these companies are monopolistic enough to require government "remedies."
The important fact, however, is that such a ruling has not been reached. Google is merely being investigated. And Apple is merely being accused. No official or legal conclusion on this question has been reached.
So if the material facts match the definition of monopoly, then you can say Google or Apple are monopolies. But they don't, so you can't.
Or if a government agency or judge declares either of these companies a monopoly, then you can call them that. But they haven't, so you can't.
So as far as I can tell, charges of Google or Apple being monopolies, monopolistic or wielding monopoly power are simply false. And those who use the M word about these companies are misleading you.