Collaborate on inputs, compete on outputs
I recently read an article about how Google Maps was better than their competition. They’re winning, it explained, because of the vast amount of data they’ve collected. Somebody commented on the article that it’s a shame there’s so much duplication of effort between mapping companies. Why can’t companies share the data? The response was predictable; people expounding the benefits of capitalism. This article is about when capitalism is effective and when it isn’t.
Competition is the undeniable innovator. It works in business just as effectively as it does in the olympics, driving individuals and corporations to greater achievements.
But of course competition isn’t always good. Capitalists who see competition as a panacea avoid the word monopoly. Monopolies manifest when it is too expensive for small players to start competing, or if big players have a network effect.
Competition incents monopoly. The best way to beat your competition is to eliminate them completely.
We shouldn’t blame corporations for wanting a monopoly, they are following a formula that they believe will give them the best chance of winning. But there are monopolies that consumers are (mostly) happy about, and some that they despise. Amazon is an example of a good monopoly; Comcast is an example of bad monopoly.
What is the difference between these two?
Amazon is highly competitive on their outputs. Their products are always improving. Their scale allows them do things that are unimaginable for a small company and we overlook their dominance because we reap the benefits of their innovation.
Comcast, on the other hand, is competing on inputs. They want exclusive access to the underlying infrastructure and are willing to go the extra mile to make sure others don’t have access. They have barely any innovation on their products and offerings.
Innovation happens most rapidly when there is competition on outputs and collaboration on inputs.
If a small company wants to provide high speed internet for their customers, it would be too expensive to lay the cables themselves. But this forces them to think of other solutions right? Maybe they will come up with some new way of providing internet that is cheaper and faster?
Yes, but that will happen anyway. Faster and cheaper internet? That’s an output. Outputs improve when you have many competitors with the means to realise their goals. Sharing infrastructure increases competition.
Collaboration allows corporations to focus on outputs and, in turn, innovation.