Conventional wisdom says that business is about producing better products at lower prices than other companies…about seeking sustainable advantages… about winning away customers from companies around the corner or around the world. Business, in short, is about competition.
But if we turn conventional wisdom on its head and say that business is not about competition, but about monopoly? You will be surprised! When we do, we begin to uncover the hidden realities of business – the Monopoly Rules. The Monopoly Rules offer radically new insights about why some companies are successful, and why others fall behind; about how once-great companies often ignore opportunities in their own backyards while upstarts seize them to achieve industry dominance; and about the little-known factors that really determine the market value of a company.
In Economics 101, one probably learned that monopolies are unnatural, illegal, and rare. Wrong!. In fact, monopolies are often natural, usually legal, and surprisingly common.
A simple example to illustrate my point.
Replacements for ink-jet cartridges used by my Hewlett-Packard Printer is a monopoly; so is Microsoft Windows unless you use I-Mac. Also, Word Processing, Worksheet, Powerpoint application bundled under Microsoft Office package basically designed to shut out the weaker competition either through merger or voluntarily close it down to preempt future losses. It is true that we usually don’t think of these businesses as monopolies. To most people, the word monopoly means something like government owned or linked companies such as utility, transportation network system like Mass Rapid Transit.
But I like to focus on are monopolies in the only sense that matters: Their customers have only one choice – to pay the price demanded, or go without.
What I am trying to convey here is that every enterprise that wants to enjoy lasting success and large, dependable profits must have a monopoly of some kind. What it means is that for example, using an off-brand ink-jet cartridge didn’t void the warranty on my HP printer. In fact, most great companies benefit from some form of monopoly. The conventional explanations offered for successful businesses are often superficial: “They have a powerful brand,” “They design good products,” “They’ve got smart management,” or “They keep their costs low.” Dig deeper to find out what kind of monopoly the company owns, and you get insights that are very different and ultimately more meaningful.
For example, Dell Computer is highly efficient at manufacturing and selling personal computers. But so are many other companies. Dell’s unique success is based on its ten-year monopoly – a decade when it was the only PC maker selling made-to-order PCs directly to corporate customers.
Thus, a business leader / owner will need to ask the fundamental question, “What kind of monopoly can our company own ?” rather than concentrating on strategies for product development, finance, marketing, or sales, in hopes that they will ( somehow) lead to profits. Those strategies may be valuable in the short term, but only as tools for achieving the real objectives – monopoly control, which guarantees a company’s long term profitability and its continued existence.
Recognizing the importance of monopoly is especially vital in today’s over-supply market place. These trends cannot be blamed solely on bursting stock market bubble, terrorism, internet piracy, or a prolonged recession. They are harbingers of the most far-reaching, devastating changes to global commercial order since the Industrial Revolution.
Taken together, these changes are ushering in an era I call the “New Competition.” In the New Competition, traditional sources of monopoly such as natural resources, regulation, collusion, or proprietary technologies are rapidly losing its effectiveness.
Most natural resources monopolies have already been taken; governments are deregulating, not handing out new, regulated monopolies; and collusion is virtually impossible, as well as being illegal.
Finally, proprietary technologies are leaking away, being copied, or being replaced by newer technologies faster than ever before. The New Competition is ruthlessly squeezing the profits out of the old monopolies! In this Darwinian environment, understanding monopoly is not just useful – it’s essential.
If you recognize your own business’s monopoly and know how to exploit, nurture, and protect it, you will have a shot at earning good profits for the foreseeable future. If you don’t, you will become someone else’s dinner – and probably sooner rather than later.
But there’s good news, too. Even as the New Competition is destroying many old monopolies, it is creating opportunities for new ones. Many of the potential new monopolies are springing up in otherwise mature, slow-growing industries with pitifully narrow profit margins.
To capitalize on these opportunities, you won’t need unique products or technologies, or even conventional advantages based on scale, scope, or the experience curve.
What you will need is vision and imagination : vision to anticipate how monopolies will emerge as customer needs and industry capabilities change, and imagination to determine how best to seize and hold the favoured competitive positions.
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