Monopoly or Infrastructure?

[caption id=”attachment_297" align=”alignright” width=”128" caption=”Is more dangerous to dance with this guy or to sit out?”]

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In Tim O’Reilly’s latest post, he says, “But perhaps most threatening of all are the natural monopolies created by Web 2.0 network effects.”

He is referencing the social web and its proclivity to spawn systems that are designed to increase in the value offered to each user as more users join the network — as more value is available more users will join…ending, of course, in a monopoly where everyone uses one system in a single, massive network. His fear arises from the prediction that the major players, Facebook, Google, Apple, must continue the push to own customers and the result will be a silo structured web — one where these large systems do not offer interoperability.

I think Tim’s fear is misplaced because of the power of the consumer and the ability for the consumer to drive innovation when they cannot find what they are looking for in the market. The bar is higher when large networks deliver experiences we can love, but when they don’t, innovation will occur and consumers will migrate.

The web 2.0 monopolies have allowed the smaller players to touch the consumer and to own elements of the consumer experience in ways the classic monopolies in the past did not. It is true that,

“we’ve grown used to a world with one dominant search engine, one dominant online encyclopedia, one dominant online retailer, one dominant auction site, one dominant online classified site, and we’ve been readying ourselves for one dominant social network.” (I would say we are there on the social network dominance as well…)

As an investor and entrepreneur I view these business as infrastructure, not monopolies. There is tremendous opportunity to deliver new services on top of these platforms and to extend the consumer experience by listening and responding as only a start-up can.

The platforms have allowed the small service providers to own the consumer relationship and to deeply integrate into the user experience of the platform itself. We see this in auto updates to the major networks and the emerging dominance of the open API as two way street — both pushing “big data” out and pulling “small data” in. In many ways through this inclusion big businesses are increasingly dependent on the entrepreneurs to deliver the magic that builds customer loyalty, to deliver what consumers love through innovation. Owning the customer is the fastest path to accruing enterprise value and somewhere in the ecosystems of each of these platforms, the seed of the next big business that will dominate the world is growing.

As Chris Brogan said at web 2.0 expo in NYC today, “Gate jumping and making new paths is where the opportunities are.” If you are working on either side of this equation or about to jump a fence and strike out on a new path, let me know how you think about this issue in the comments.