Vecta on Monopolies and Duopolies

Vecta Consulting

Vecta on Monopolies and Duopolies

Intel and Microsoft once worked closely with, initially IBM and latterly, Compaq to define the standards on which the PC industry grew so phenomenally during the 1980s and 1990s. Duopoly situations like this are common in industry sectors where economies of scale can be combined with the global reach necessary to exploit that scale.

Commercial success "earned" Microsoft a monopoly position in both PC operating systems and PC-based office automation applications like presentation, spreadsheet and word processing software. Its attempts to extend these earned monopolies into areas such as email and web browsing attracted the attentions of anti-trust regulators.

Governments are uncomfortable with monopolies, fearing abuse of the consumer, yet competitive strategy from Machiavelli to Porter and beyond has always sought unique sustainable advantage against competitors, in effect a monopoly. Rapidly evolving technology markets also favour monopolies with their power to set de-facto standards that overcome the multiple interpretations endemic in most open systems.

Companies with more than one "top 2" position survive downturns and reap profits in good times while the "have not" companies become acquisition targets unable to sustain adequate margins in the face of global S&M, and R&D costs.

The "have nots" must grow to profitable global #1 or #2 in several sectors or shrink into niches with costs staying high as revenues slip. However maintaining employee morale in mergers is difficult and may lead to profitless #3 positions despite the acquisition expenditure.

Technology providers exposed to global markets and few regulatory constraints generally evolve rapidly to a duopoly with one party more or less dominant but the second having a sufficient presence to help keep anti-trust concerns at bay.

Notable examples include Intel/AMD for processors; Oracle/IBM for databases; SAP/Oracle for ERP; IBM/newHP for large corporate systems; and Dell/newHP for corporate desktops.

HP, IBM and Sun contine to compete in several areas that seem likely to consolidate further. Sun's dependence on an integrated hardware and software platform is beginning to make it look vulnerable.

Achieving global #1 or #2 positions in several large areas is critical to supporting the global sales and marketing and massive R&D spends necessary to ensure healthy margins. However there are enormous risks to employee morale that may lead to an unprofitable #3 outcome. On the other hand, shrinking into a niche usually adds the problems of revenues shrinking faster than costs. Nevertheless not everyone can be a #1 or #2. Sun, in particular, faces serious challenges in the next year.

Our Strategy Experts Network is dedicated to exploring the key issues related to developments in business strategy. This involves projecting the evolution of market areas and approaches, identifying strategic business needs and understanding revenue models and valuations.

Our extended network ensures we have the expertise to help you solve just about any business or technology problem.

More info from:

Marian.Thomson@vecta5.com

Vecta Consulting Limited, Mulberry House, 2 The Spinney, Broad Lane,
Cottenham, CAMBRIDGE, CB4 8RN
Tel: +44 (0) 1954 250222, Fax: +44 (0) 1954 252333