Monopolies and Startups

Christina wrote a post yesterday that got me thinking. It's not quite like working together but when a former colleague blogs, you get a bit of that "in the halls" thing that makes working in a group so great. Fortunately, Charlie, Andrew, and Eric all blog too.

Christina makes this point about medallions and monopolists:

I’ve started to believe the leverage in the “sharing economy” will be in opening regulated industries. SF cabs were atrocious because there are too few medallions. (Turns out the medallion holders, keen to restrict medallion supply, were well-incented lobbyists, as any good monopolist should be.) The revolutionary part of Lyft and Sidecar is that those companies decided, forget the medallion battles! and let’s just increase the number of drivers on the road.

I love this Margaret Mead quote:

"Never doubt that a small group of thoughtful citizens can change the world. Indeed, it's the only thing that ever has."

So now, after quoting two bright women, I will get to my point.

Monopolies aren't great for society. So we have trust busters in government whose job it is to keep the monopolies in check. But they don't do that so well. And our government is pretty good at handing monopolies out. Just look at the cable industry.

A few entrepreneurs in a garage. Or a few hackers on the Internet. They are the best trust busters of them all. Look what open source Linux did to Microsoft. They put a dent in a machine that the government could not. And look at what Lyft, Sidecar, and Uber did to the medallion owners in San Franscisco. They got cabs on the streets when the government could not.

Never doubt that a small startup can take on a huge monopoly. Indeed, it is the only thing that can.

#VC & Technology

Comments (Archived):

  1. LIAD

    The passion to change the world for the better is a more powerful force than the defense to keep it the same. – Simon Sinek (4.3.13) – is never voluntarily given by the oppressor; it must be demanded by the oppressed. – MLK

    1. fredwilson


      1. LIAD


  2. Ricardo Diz

    I guess one important note is that the disruption in monopoly related business is much more likely to happen if the end consumer is on the drivers seat (B2C), rather than the startup relying on big corporations to change the way they do things (B2B) – Utilities come to mind on the latter point.

    1. fredwilson

      yes, very much so.

    2. Matt A. Myers

      Consumers get a vote then.

    3. Jim Peterson

      To your point, it was employees (consumers) who brought iPads into the workplace. Not corporate purchasing departments.

  3. Jorge M. Torres

    My hope is that a few entrepreneurs in a garage or a few hackers on the Internet will figure out a way to bust the monopolies that patents can confer on large companies, or at least, figure out a way to remove the pain patents can inflict on devs and small tech businesses.

    1. James Ferguson @kWIQly

      You can always do a startup in the EU – Software is the expression of a mathematical idea in a language and its crazy for it to be patentable. Copyright sure!

      1. ShanaC

        copyright in the us, if you can prove infringement, is worse…

        1. James Ferguson @kWIQly

          Yes, but it doesn’t stifle development – the idea is the value not the implementation detail so copyright is generally not an issue

  4. Eric

    What about M&A’s role over the last 30 yrs? Corporate America gobbles up the market without the end user’s awareness. Very few own all the players, but never change the badges. The great and powerful wizard hiding behind the curtains of its “competitors.”

    1. fredwilson

      many companies are damaged when they are acquired and become easy targets for startups to take on

      1. pointsnfigures

        A research paper on M+A here:…

  5. laurie kalmanson

    monopolies smooth friction but with the wrong outcomes for everyone else but the monopoly

  6. Barry Nolan

    It’s helpful having an enemy to focus on, but best not to compete head-on. Change the rules, at the fringes.One benefit is that your marketing message will be in sharp relief to the monopolist. Consumers can immediately understand your message (Hailo/NYC) , because you are precisely what the monopolist is not – a narrative you can harvest in the socialverse.

  7. Jan Schultink

    Agree BUT:Most government monopolies were created to protect outliers i.e. delivering the mail, drilling a water pipe, or pulling a telephone cable to a remote village in Alaska.Taxis in SF are probably different though.

  8. LIAD

    This post highlights for me why resilience, tenacity and balls are entrepreneurial keystones.We’re trying to take on Goliaths for frick’s sake!We’re here to slay giants, fell incumbents and smash status-quos which sovereign governments can’t even take down. And we’re attempting it all on shoe-string budgets, when we’re young and inexperienced and usually at the folly of family and friends.To top it off, if against the odds we succeed, we deliberately invest the fruit in the next generation of giant-slaying dreamers….tech startups are truly a wonderful world to be in.

    1. btrautsc

      i was actually wrote a blog post about this yesterday… substituted Rocky Balbo & Ivan Drago in the David & Goliath metaphor.

      1. LIAD

        the Drago training scene in that movie….the things dreams are made of.

  9. jason wright


    1. pointsnfigures

      Interesting, I have been using DuckDuckgo recently and like it. Switched my browsers to it to give it a try. People can break the Goog monopoly. All they have to do is change a habit.

      1. jason wright

        can advertisers do that?

  10. Nick Tomaino

    “Never doubt that a small startup can take on a huge monopoly.” I can’t help but think of Bitcoin as a small startup created by a few hackers on the internet taking on a monopoly controlled by the government (the dollar).

    1. pointsnfigures

      Bitcoin is a bubble waiting to be pricked right now.

      1. Nick Tomaino

        I agree that Bitcoin is likely a short-term bubble and I didn’t mean to turn this into a Bitcoin debate but I think people are underestimating the truly global nature of this “bubble”. The Dutch were the primary participants in the Tulip bubble and participation did not span beyond Europe. The US was the primary participant in Internet bubble and participation from other countries was minimal. Check out the global map on Google Trends of Bitcoin. The whole world is participating and for that reason I think this “bubble” could persist far longer than many are predicting.

        1. markslater

          single most important thing that needs to happen in our lifetime.

      2. William Mougayar

        Their recent volatility is frightening. I don’t totally understand it.

        1. pointsnfigures

          the volatility has to do with information. The market is pricing in information as it learns about it. but the concept is radical, and new-so that brings volatility.

          1. andyswan

            That and a startling lack of liquidity. It’s the currency version of a penny stock. It could be for real… but there’s no need to chase it.

          2. William Mougayar

            Do you think it will stay that way or subside? That’s scary for most people.

        2. robertdesideri

          Does an extended directional move have higher vol than turbulent oscillation within a band? As we know from fluid dynamics perturbations act in strange ways, reactions can appear scary at first. Then are understood. I’d say BTC is performing a valuable experiment that should not be lost on any observer. Our job is to report observations scientifically. Anyone screaming bubble or fraud should stop and think about the wonderful tools we have today to disseminate scientific information to educate rather than divide. BTC is the best thing to happen in years, not just because it’s a possible solution for a problem.

      3. LIAD

        few things compare to the disruptive & transformative potential of a decentralised currency like Bitcoin.The BTC/USD price is a tiny (over sensationalised) facet of what Bitcoin is really about.

        1. robertdesideri

          Liad, I completely agree. BTC/USD over sensationalized, the media feeding tube can’t handle much more. However AVC can, which is why this cafeteria is where the cool kids eat. The architecture of BTC is the interesting bit, the cool thing the designer(s) did is they invented nothing new, they simply arranged the blocks (pun intended) in a new manner. The definition of development.

      4. kidmercury

        bubble blowing is the valley’s core competence, so no surprise here.

      5. ShanaC

        why do you say that

    2. MTLinville

      I don’t see the difference between using BTC or gold. Each has a finite supply, which makes it very dangerous for broad use in the global economy.

      1. Nick Tomaino

        The difference is the ease with which it can be used to exchange goods and services. Gold is extremely difficult to exchange for goods and services. BTC is the most simple, seamless way to exchange goods and services that has ever been invented. I think this point is missed by many.

        1. MTLinville

          Very true. I guess the point I was trying to make was that reliance/wide adoption of a fixed currency like BTC or gold is dangerous from a macroeconomic perspective vs floating currencies. See the gold standard in the late 1800s/early 1900s and the Eurozone today.If anything, BTC’s max is capped way too low to ever be a widely usable currency (even with being able to go to 8 decimal points or whatever).

        2. ShanaC

          During world war one and the great depression, the way countries would move gold (since they had paper currency that could be redeemed for gold) is by moving little labels within the bank vault.It was a pretty fast system – and it didn’t help that the early version of the fed try to restrict gold leaving the country which caused bank failures….

  11. James Ferguson @kWIQly

    Oh Fred – I so like this thinking.Its that Christiansen pattern over and over again, I think of whats going to happen to the proprietary controls industry.Take one raspberrry Pi or an arduino board and network it up to a thousand others plus some simple I/0 capabilities and soon you have the processing, storage and I/O capacity of building control systems that cost ten times as much (or more), that are inaccessible, stale and frankly just boring.A truly massive industry with a train hurling down the track at them is just beginning to wonder how someone put a train on their gauge of track !Yes it will be messy – You just gotta love it !

    1. fredwilson

      raspberry pi is amazing

  12. aweissman

    Eben Moglen has some real good quotes related to this:”The way innovation really happens is that you provide young people with opportunities to create on an infrastructure which allows them to hack the real world, and share the results.”and”Innovation comes from the simple process of letting the kids play and getting out of the way.”

    1. Richard

      The issue to me is the rate of innovation. Lets not overlook that great Innovation can takes place at amazing speeds within monopolistically competitive markets as well. The processors that are powering our devices are perhaps the greatest example of this.

    2. William Mougayar

      Good ones.”Imagination is more important than knowledge.” – Einstein. And it reminds me of “Ignorance is bliss”.The innovator looks at something and sees the problem, and decide to fix it regardless of the underlying mess it was resting on.

    3. ShanaC

      Do you feel it has become more difficult for young people to hack the real world?

  13. Mac

    Hasn’t the old axiom, “build a better mousetrap…”, been true throughout history; regardless of monopolies or governments?

  14. pointsnfigures

    A lot depends on the startup costs. In the banking/exchange world, the regulatory costs to start up are so high its difficult. For example, the tiered distribution system in stocks and prime brokerage are ripe for innovation-but the SEC and banking regs get in the way. As Fred says, they were written for a reason-and that reason wasn’t to encourage competition.Cabs were ripe. There was demand on the consumer side, and excess inventory on the supply side. Have seen some of the same things with printing and logistics.Medical is the next frontier. There are private monopolies in medical software, Epic for example, that artificially drive up the cost to innovate, which artificially drives up the cost of health care. I see A LOT of companies applying lean start up/crowd sourced/sharing/ principles to medical.The cost to do DNA research is dropping faster than the cost of technology. In the next ten years (barring taxes and regulatory hurdles) the world should see massive leaps forward in medical technology that saves lives and decreases costs.This was coming with or without Obamacare.

    1. ShanaC

      actually, the banking regulations are bad for consumers – it makes it more difficult to invest and to switch banks…

      1. pointsnfigures

        Yes, the entire system is not designed for consumers. Dodd-Frank passed and your fees went up.

  15. Brandon G. Donnelly

    Now, who’s going to crack the real estate monopoly?

  16. brian piercy

    If only I could devise an alternative to the NCAA. WAY overdue for a takedown.

    1. fredwilson

      not sure how that happens. that’s a hard one.

  17. johndodds

    You probably meant this when you referred to goverrnments “keeping monopolies in check”, but it’s also critical that they ensure that competition is genuine. In the UK a lot of “natural monopolies” were privatised and it’s not clear that the resultant oligopolies have been made to behave optimally.

  18. takingpitches

    Empowered network > captured, output-reducing regulator

  19. SallyBroom

    The Margaret Mead quote is one of my all time favourites. I can’t count how many times I’ve used it in presentations, especially when speaking in schools about entrepreneurship, it’s so inspiring. Really like your take on it too so might be quoting that one too soon!

    1. fredwilson

      quote away sally

  20. Richard

    heck of a board game.

  21. William Mougayar

    You can add Aereo to that list of disruptors of monopolies vs. the big broadcasters.

    1. fredwilson

      yes indeed

  22. Brandon Burns

    I wonder what’s going to happen when someone complains that Facebook has a monopoly on real name social networking. Or Twitter has it on micro blogging. Etc.What happens when you get a monopoly in an area where the best product, by default, means everyone is on it? What happens to monopolies when “winner takes all” is the only way to survive?

    1. kirklove

      Personally I believe the Internet has made “winner takes all” completely obsolete. The cake is just getting bigger. Plenty of slices for all. Granted some much bigger than others, but certainly no one can lay claim to the entire cake.

      1. btrautsc

        Right. Even many people thought Facebook would create that monopoly, and then as Twitter rose up potentially they could usurp Facebook, but now many young consumers are adopting SnapChat… None will be able to hold a monopoly, because the market (internet) supplies so many options….

      2. Brandon Burns

        I think that’s mostly true, except for stuff like social networking: Facebook, Twitter, LinkedIn, etc. All of these platforms saw several years of people trying to create alternatives to them, and none of them fell because their value is in the fact that everyone is already on them.Though I guess one could claim that none of them have monopolized social networking, but just their part of it.

        1. kirklove

          Perhaps your view is a bit too narrow… at least in timeframe. Social Networking is still nascent. Many said the same thing when MySpace ruled supreme and it was usurped. Facebook, Twitter, and LinkedIn will be, too. Maybe not to the same degree. One other quick example… Tumblr usurping WordPress. No one would have seen that coming as little as 3 years ago. Fun times!

      3. fredwilson


    2. btrautsc

      as a consumer, having the choice to switch means there is no monopoly. As long as switching costs are relatively low, then the best product winning is how free markets are supposed to work.

      1. Pete Griffiths

        The challenge of course is that with network effects, huge amounts of personal data in the cloud and UI familiarity switching costs are much higher than they might appear to be.

    3. Richard

      We have crossed the chasm and are at a point where firms compete with each other based on innovation as much as price. Firms only remain profitable if they continue to innovate, without innovation, even the most efficient firm will be forced from the market by its innovating competitors.

    4. itamarl

      In this case decentralised social networks such as could be the answer. The market picked email and smtp as the best solution to exchange messages but that doesn’t mean we all have to use the same provider. Some day interoperability between decentralised social networks could be the answer to that monopoly.

    5. MTLinville

      NPR had a great story yesterday talking about FB’s speech regulation rules and includes an interview with their Global Policy Manager, who is in charge of regulating the speech of 1B+ users.

    6. LE

      Great point.The way you handle this situation is similar to how the mythical mafia operates. You simply spread around the cheer to lessen the amount of people that oppose you. It becomes a cost of doing business. You can’t be all piggy and not allow others to benefit.

      1. Brandon Burns

        Facebook is doing that well… for now.

    7. ShanaC

      actually, how about on web standards – people might like that. 🙂

    8. Pete Griffiths

      This is a good point. It is possible for companies to innovate and build a great product and yet fail because the incumbent is benefiting from network effects and established habits. Consider Google+ and FB.

    9. fredwilson

      compete with it. the mobile messenger apps are taking a lot of time/attention from facebook right now as has been well documented in the media

      1. Brandon Burns

        whats interesting is that the mobile messenger apps are not beating facebook at their own game, they’re beating facebook with a different take the great historical story of a broken monopoly, competing with standard oil meant meant doing it with oil. now you can bring down a giant who makes apples with oranges instead.

  23. William Mougayar

    This point Christina made “I feel safer in a “Lyft gypsy cab” than in a regulated yellow cab.” shows that the old monopoly regulators have failed.

  24. Mroberhozer

    Couldn’t agree more. But this begs the question: does this follow to other, heavily-regulated sectors like education and healthcare? My gut reaction is yes, although it might take a few more bites of the elephant over a longer period of time.

    1. fredwilson

      eventually yes

  25. William Mougayar

    Taxis in SF deserve the disruption they are getting. Any frequent visitor to SF knew that, but we took it for granted for so many years that it wouldn’t change. Thanks to the Internet, now it is.Nothing is really good anymore unless it happens on the Internet.

  26. kirklove

    At first my reaction is so what they are disrupting the taxi business – big deal. But, quickly realized how myopic that view is. Others in completely different industries and verticals will see this and say, “You know how X disrupted the taxi system, we can do the same thing for (fill in your vertical of choice)”. David kind of proved that to Goliath.

    1. William Mougayar

      Yup. If the Internet was a magic wand, the words “Go Disrupt” would be written on it.

    2. fredwilson

      i tweeted this out last night…now i see this comment#mindmeld

  27. markslater

    But the question about “explode” vs “radically evolve” must always be asked. the taxi business in my view – will evolve – it will not get exploded as some of these startups are attempting to do.did these startups “rock the boat for the better” absolutely – will they win by taking the “explode” approach – not sure but could be a fatal error.

  28. andyswan

    A monopoly is impossible without government assistance. Startups are just one of many symptoms of a monopoly that make it impossible to exist.When someone tells me they’re taking on a monopoly, I tell them “no, you’re taking on the government.”Far better to create your own monopoly, in your own niche, and grow big enough to compete with its symptoms.

    1. William Mougayar

      And the sad part is that monopolies breed corruption. Governments aren’t typically very good with accountability.Monopoly + Discretion – Accountability = Corruption.

      1. Matt A. Myers

        Current political systems and rules breed corruption — whenever there’s profits to be made if policies change slightly in a for-profit company’s direction is what breeds corruption – not specifically monopolies. Sure they could, but that’s a correlation / causation mistake saying that they all.Indeed you’re right too, without accountability there’s a higher probability that corruption will / can occur, and that people will attempt it.

        1. William Mougayar

          Take the LCBO in Ontario. It’s the most stupidly retarded and backwards monopoly that should be totally abolished.I don’t think there exists any larger alcohol government monopoly in the western world than in Ontario. It breeds management mediocrity, poor customer service, bad inventory choices, high prices, no competition, spending on expensively useless stores, etc… Shall I go on?End-result: we, consumers pay for that and suffer from it.

          1. awaldstein

            The wine business with regulations in Canada is truly primitive.Don’t understand it. Don’t understand why anyone puts up with it.I have friends who work for some of the importing companies in Scandinavia, also monopolies in some cases.Restricted they are but their selection is still rather remarkable. Not so in Canada to my knowledge.

          2. William Mougayar

            Their buyers buy based on terms, size, marketing or otherwise. Anything but true taste, value, unique finds, niche terroirs, etc…BC & Alberta are different now, and you can see a lot more choice there.

          3. awaldstein

            Get off of and this chatter and go create a consumer uprising for the good of your palate!!Canada need a fermented revolutionary hero! Should be you my friend.

          4. William Mougayar

            I wished I had the time for this. It’s a political thing. Only a change to a Conservative government would help this.

          5. awaldstein

            Not letting you off that easy my friend ;)You engage in discussions in changing the laws of the US on this blog all the time.Surely modifying the government of Alberta so you can finally get a decent bottle of wine from the Jura, Savoie, even Etna is a small task certainly worth taking on!

          6. Matt A. Myers

            Right and they earn $10 billion a year without having to share that with private businesses, and if they did then government would just increase taxes to pay for everything – and probably have to increase it even higher than their current revenues/profits from it because then you can’t limit the number of places selling alcohol (an item that leads to unruly behaviour, violence, vandalism, etc. compared to not consuming it); There are pros and cons to everything. And if it gets opened up, there will still be 1 or 2 big box stores that will takeover, and they’ll offer the same mass produced stuff they get get cheaply through economies of scale – and yes, there would be smaller niche places that open, which would be good to offer selection but how many would there really be? That’s the issue with the big box store model – they kill off the majority of little places where there would be people who are more experts in the market than the employees the big box stores otherwise hire.End result: Neighbourhoods are possibly safer, government brings in more money than if it had to share it with private businesses (controlled ecosystem), etc.. I do agree it could work well in the other direction, though then you can’t control fraudulent product as much, etc..There are other problems with hidden taxes – like how we subsidize the road system for businesses; Cars don’t cause damage to highways – transport trucks do.

          7. William Mougayar

            No one has a monopoly on liquor like the LCBO in the Western World. They have a 50% profit margin on $5 billion sales and transfer $1.5 billion to the government. Privatizing doesn’t mean that the $1.5 goes away- it will be generated from the private stores who will pay wages, other taxes, etc…

      2. Pete Griffiths

        Pretty much everything breeds corruption. All people need is opportunity and monopolies are by no means the only fertile ground.

    2. Elia Freedman

      I’m only reacting to the “always” nature of your argument. Is that true? Was Windows, for example, a “government assisted” monopoly?

      1. andyswan

        No and that’s why it is no more.

        1. Elia Freedman

          Okay, so that means monopoly is possible without government assistance. At one point, Windows was a monopoly and maintained that for over a decade. Yes it didn’t last longer and I agree that government interference could have maintained that. But all the same.

          1. andyswan

            Well we have very different definitions of a monopoly. 10 years of insanely high market share in a new industry is not a monopoly, it is the reward for building a great product and destroying inferior competitors. MSFT, GOOG, Ford, etc.

          2. Elia Freedman

            I’m not certain we do. When does a business cross over from “winning” to “monopoly” then? Only when a business has government assistance?

          3. andyswan

            Only when competition with them is impossible (which also happens to be when government assists them in doing so)

          4. kidmercury

            siding with andy in both beefs here (elia and LE)

          5. Pete Griffiths

            I think this is backwards. There can be many cases where a business could gain a monopoly and are only stopped by government action.

          6. LE

            “it is the reward for building a great product”Microsoft didn’t build a great product. They mastered mastering the ecosystem [1], that is the “tech guys” who pushed that product and made their money off off having to support that product. In a sense the fact that the product sucked and you needed help worked to their advantage since they didn’t have to grease as many palms and people built their career on supporting and living off Microsoft. Look at all these “certifications:…That’s part of the allure of this ecosystem. Cisco did this as well.IBM did this prior to Microsoft (however their products were rock solid and it worked differently mainly by getting the IT departments to give them the advantage over competition and having a very effective sales organization.)This is really just psychology and common sense. In my first business I got an opportunity for my first big contract which would replace an inhouse printing department. Although I was young I quickly realized that the old timer who ran the department was against the idea but he played a pivotal role in getting the project approved (after a trial period). It wasn’t that he feared losing his job (union I guess) it’s that he feared not being the go to guy at the hospital (more or less the power of the supply cabinet keys). So when I realized what was going on I simply sucked up to him and made a conscious effort (during the trial) to make him look good. (I even bought him a rubber stamp with his signature so he could stamp our delivered orders and didn’t have to sign he really liked that.) He quickly realized he had a pretty good thing going. We did all the work making the deadlines departments needed and he got all the credit and accolades of the pretty girls that worked in the hospital that needed that work. So he realized that it was actually better for him than before and he supported the replacement 100%. (For the record the quality of our product was so so.)

          7. andyswan

            The ecosystem is the product.

          8. William Mougayar

            100% yes. The ecosystem is the ultimate product a company can dream to have.

          9. Pete Griffiths

            That may be how you choose to define a monopoly, but it isn’t a widely accepted definition and it certainly isn’t a definition shared by economists are the overwhelming majority of attorneys.

    3. kidmercury

      government itself is the ultimate monopoly.

      1. andyswan

        Yes. Monopoly on the legal use of violence.

        1. kidmercury

          and on printing money. when government prints money and gives it to banks that pay off politicians it’s awesome and holy. when you print money and go shopping it’s counterfeit.

          1. andyswan

            I’ll disagree with you there. That monopoly is only there because we all play along. There are plenty of people in this world that work in the currency of Swan. I’m sure there are many that work in kidbucks as well. We havent taken them mainstream yet.

          2. kidmercury

            folks who have tried and acquired a degree of success and found themselves the target of the IRS. but i certainly agree we should keep trying and am optimistic and confident we’ll get there in time.

          3. Matt A. Myers

            We play along by electing our governments, too – therefore it’s natural, not forced — although it’s corrupted some by for-profit business influences and lobbying, etc..

          4. Emil Sotirov

            “awesome and holy” – I like that!

        2. ShanaC

          is that a bad thing? it sounds like life would be chaos if we all could be violent when we wanted to be

          1. andyswan

            No it’s not a bad thing but that power must be strictly limited.

          2. ShanaC

            interestingly i found that hobbes disagrees with you – he thinks the public and the church should be limited and not the government/king if you want stability

      2. Matt A. Myers

        I disagree. I mention further in my reply to Andy at top of this thread.

        1. kidmercury

          you do not choose where you are born. when you are born in the united states, you are automatically a US citizen. US citizens are required to pay income tax on all income they earn, even if it is earned outside of the US. they can choose to renounce their citizenship — though this process is not easy, and fees are required. failure to comply with these terms will result in the state using its violence against is true that other countries operate a bit differently — some placing more onerous penalties if you are born on their property, others more liberty-oriented.

          1. Pete Griffiths

            It’s not important but I don’t believe fees are required.

          2. Matt A. Myers

            You also benefit from everything in the land — so hopefully you get born in a better country / system than not; Hopefully it’s a society where everyone cares about everyone. And I agree that those are not good behaviours and they are controlling, though they exist because the whole doesn’t function as a whole yet.

          3. kidmercury

            I pay for these “benefits.” If I choose not to pay I am arrested through the use of armed force.those wgo suppoet the state support the use of violence instead of voluntary agreements.

          4. Matt A. Myers

            The alternate utopia it feels like you’re assuming or hoping that will exist sounds nice – where everyone gets along and helps everyone out out of the goodness of their hearts.There’s one test I like whereby how would you want a society to be structured if you had no control over where you were born. Would you want to live in a place where everyone is taken care of, or one where you’re left on your own? Etc..

          5. kidmercury

            left on your own, no question. the state will never take care of you, historically it never has, only your real friends and family will and they don’t need the violent force of the state to be motivated to do so, they desire to do it by choice. it is a historical fact that the state kills more people than any other institution.

          6. Matt A. Myers

            Well it’s unfortunate if you dictate what you think is possible based on the past, and not based on psychology of behaviour, of the masses, of the benefit that things like the internet brings towards interconnectedness, etc.. I have a plan and I see it working.

          7. kidmercury

            i don’t consider it unfortunate to respect history, rather i consider it wise. the only thing new is the history we don’t know. in any event, it is a simple fact that the state is the most violent institution in recorded history, my favorite fact to present to supporters of the state — one that is rarely if ever acknowledged.

    4. Richard

      Be careful what you wish for when it comes to the Monitoring monoplies. Everyone should remember the fiasco of US Department of Justice v Microsoft and its monopolistic web browser internet explorer. Ha! Or the Obama administration threats of the ATT/APPLE agreements. Chuckle!

    5. Matt A. Myers

      I think you have a biased view, relating to your hate toward government.Government isn’t really a monopoly because the idea is that people vote the government in, and therefore the government really is never the same entity – unless the population votes the same people in – which by nature of a monopoly means that they don’t forever hold control; Private companies on the other hand have one or a small few who decide who runs the company and directs it.There are however many oligopolies who compete with efficiencies of price. Unfortunately efficiencies of price is contrary to providing quality – however luckily this is where we’re going, towards quality and wellness – and this comes because people are able to be more educated, pre-order things, pre-plan better, organize better – and the stronger impetus is that people are getting sick when they don’t need to or shouldn’t be, and we’ve all been exposed to shitty products, when even a slightly better version could last us a lifetime with minor maintenance; Think the “sharing economy” too, as Christina mentioned in @fredwilson:disqus quoting her.And what you describe of creating your own monopoly, in your own niche – I think can be very healthy, and the right approach – if the monopoly can be formed naturally, meaning you have power (often confused with control) – because people are supporting you and using you, instead of others, because it serves them 100% — they are getting 100% of value, you are providing 100% value. This would be a natural monopoly. Natural / fixed resources have an extra layer of complexity to them which usually disallows them from flowing naturally.Oh Andy – you never answered my question from another thread asking if you realize how government supporting health / education helps the police with the job of keeping people safe from others – the later something that you feel the government should put funds towards.I’d love if you’d answer why or why not health / education should or shouldn’t be supported, even if it does influence positively the work of police keeping us safe from others.

      1. andyswan

        I don’t hate government. I am not an anarchist. I hate government overreach and have very strict views on the role of government in the affairs of individuals.Government does have a monopoly on the use of violence. I don’t see how you can argue that.There are a lot of things that government COULD do that would help police keep us safe from others…. they COULD kill all criminals on the spot. They COULD build walls around high-crime areas that keep people in. They COULD force me to participate in a healthcare scheme that I don’t wish to, and they COULD force me to pay for it.But just because something “helps police keep us safe” doesn’t make it proper. It must be weighed against the ultimate and only moral goal of government, which is to preserve individual liberty. That is an extremely strict test that none of the schemes mentioned above, nor 99% of those proposed, will pass.

        1. btrautsc

          meh…. all of those “coulds” don’t happen because the politicians that enact them, would likely be voted out of office. That is a check and balance.

          1. andyswan

            Boil the frog slowly. We are certainly further toward them than we were one generation ago. They confiscate your earnings to pay for someone else’s retirement FFS

          2. ShanaC

            In the sixities? I would have been less free.

          3. andyswan

            The advance of civil liberties is certainly masking a great deal of the decline in actual liberty.

          4. pointsnfigures

            Since the Bush administration, we have seen a decline in actual liberty. Since Obama, it’s going faster.

          5. ShanaC

            to some degree – though I think the loss of actual liberty is actually a product of ultra-libertarian views including the idea of corporate personhood with the same powers as person-personhood. It makes institutions over people too powerful

          6. andyswan

            Corps can’t vote, have kids, plead the 5th…gimmie a break

        2. Pete Griffiths

          Government doesn’t have a monopoly on violence.It has a circumscribed ability to apply legitimate violence.There are many cases in which ordinary citizens have a clear right to violence – self defence.

        3. Matt A. Myers

          So you don’t really have a specific answer? Just give police money?What’s your definition of preserving individual liberty? And so then at the base – you believe the individual is more important than the whole? You realize that the whole includes every individual, too, right? Which means that every individual is then taken care of in the whole, and is in fact stronger and safer that way. It costs less too, because of economies of scale – I’m sure you’re able to understand that, too.And that isn’t the only and ultimate goal of the government – not really. Also, for you to have individual liberty, there are costs associated with that – to protect you from others as you say – which is actually cheaper to do by having people be educated and healthy. I don’t know why you’re resisting this idea so much, is it mainly because it’s contrary to a core belief of blanket that “government overspends” – and then causing cognitive dissonance?

          1. andyswan

            I believe that the liberty of the individual is of paramount importance. I’m fine with you joining a collective and putting your schemes together voluntarily.The bottom line is your philosophy requires my involuntary participation. Therefore it is immoral. My philosophy makes no such claim over your life. You’re completely free to seek out and organize with like-minded people, each living for the benefit of each other. Enjoy….but count me (and a few other individualists) OUT.

          2. Jim Ritchie

            Well said.

          3. Matt A. Myers

            Walled gardens don’t exist – they’re illusions. Everything you have now or were able to build for yourself is because of everyone before you, and everyone currently around you. Technically you could find an island and move there, with your “few other individuals” and build a life – but if someone else wants something on your land, you’re going to have a bad time – and that’s how the cycles begin. If everyone was peaceful then it could work – it’s a nice feeling idea to get complete freedom, where you’re not affected by everyone else – otherwise you need tolerance and patience and flexibility in order to feel a certain level of similar comfort.And actually your philosophy does affect my life. It allows violence to exist and flourish more prominently, to force me to have to put time and effort into protecting myself (and my family and friends) – to spending time and money and profit towards such – because not supporting education and health, etc. leads to this. Either way I am affected, in your mind though you’re just not seeing that as a cost – but how do you deal with those? You want to give money to police to kill off people who are violent (exaggeration).

          4. andyswan

            I don’t want to be alone. I very much value what others offer. I love dealing with others on a voluntary, mutually beneficial basis. That’s what creates wealth.That doesn’t mean I am indebted to others (nor them to me) just by virtue of their existence.What you demand is my involuntary participation in the scheme YOU think would be best. Who are you to demand such control of me? How do you plan on compelling my cooperation, if not via the threat of violence?You can’t. That’s why collectivism is immoral, why it leads directly to tyranny, and why it will always fail.

          5. Matt A. Myers

            You didn’t answer my question or concern that the methods you prefer lead to the same predicament of forcing me to participate in a certain behaviour(s).

          6. andyswan

            So you’re saying you should be allowed to force me into your scheme because it will benefit you. Sounds right lol

  29. SD

    Fred, the cable industry is NOT a monopoly. #1- none of the cable cos reach more than 30% of us hh #2- in many of the biggest markets, there are 3, sometimes 4 multichannel competitors (cable,telco, directv and dish). #3 the cable industry grew by offering usable broadcast reception, the. Innovated by paying money for rights and content (eg: ESPN, MTV, etc).I agree that cable is certainly big, and the industry structure sometimes penalizes certain types of innovation. But monopolists they are certainly not.I would characterize the industry structure as competitive stability–tht is likely to be disrupted (particularly in entertainment as opposed to sports)

    1. GG

      You are joking right. I stay in Cambridge,MA (thats a big market), we only have Comcast and they suck

    2. fredwilson

      local monopolies

  30. Tom Labus

    But everyone wants to control their market and will do whatever they need to do so,Everyone wanted to be MSFT and GOOG still does.

    1. fredwilson

      i do not think google wants to be microsoft. they certainly aren’t acting like it.

  31. Joanne Friedman

    words to live by. the only thing a small startup can’t do is find sales in a risk averse economy.

  32. Dave Pinsen

    Government regulations are often used by incumbents to keep out competitors, and sometimes the regulatory environment entrenches monopolies. But entrepreneurs ought to remember that regulations can serve legitimate purposes to, for example, in protecting customer safety. Something to bear in mind when it comes to car services, particularly in light of the alleged rape of a young woman by an Uber cab driver last month.

    1. kidmercury

      uber and all these internet things offer their own form of governance, and in fact compete against each other to deliver the governance systems users want. nations in many way compete in the same way, although they have a much stronger lock-in that includes violence. in your example, people have gotten raped by government taxis too, and personally i’d feel more comfortable with the uber governance system than with whatever the government claims to provide.

      1. JLM

        .Concealed Carry PermitJLM.

        1. kidmercury

          that’s right!

      2. JLM

        .To your point, governing philosophy when exposed to a market pricing mechanism is a powerful agent for change — Ex #1 Phil Mickelson and Tiger Woods. One is long gone and the other is soon gone.You cannot swing a cat on a short leash in a BBQ joint in Austin, Texas without hitting someone who has moved from California to Texas in the last 6 months.They are voting with their feet on the dramatically differing governing philosophies of two States that would be huge countries left to their own devices.If only we could do the same thing at the national level.No cats were injured in the course of making this comment.JLM.

      3. Dave Pinsen

        Time for Mr. Lee’s Greater Hong Kong?

        1. kidmercury

          that’s a snow crash reference right? glad i partially read the book, i really wish they would turn it into a movie so anti-fiction reading people like me can get the whole story. but from what i can gather i agree entirely with stephenson’s view……not science fiction, science prophecy is more like it…..

          1. Dave Pinsen


      4. fredwilson


  33. vruz

    Two things:1) San Francisco cabs were not a global monopoly like Microsoft. A number of degrees of magnitude simpler, by the sheer size of the task alone.2) Linux was not made by a startup, but hundreds and thousands of individuals and hundreds or thousands of startups too. Apart from the software itself (both the raw code, and the “distributions” end-users are familiar with), Linux is a very loosely coordinated, globally distributed network of developers. A number of different business models have been built on top of Linux.Concentrating on single groups of a handful people doesn’t cut it to take on global monopolies, or even some minor ones in tightly rigged markets. In such markets, you not only have to overcome technology challenges and the economies to make them work, but also perfect storms of shady or illegal government and corporate practices. The game is stacked against us.It can be done, but it takes too long to undo rigged markets, which leaves you with a much bigger economic problem to solve. So in the end that doesn’t work well for really huge problems. (like taking on Microsoft)The only actual solution to global monopolies and other big problems is to redefine markets and creating swarms of loosely coordinated startups and individuals on a global scale.I suggest taking a closer look at Linux and how the communities behind it actually work. There’s quite a lot more there than there seems to be.Or have a closer look at MongoDB, another open source project in which you at USV are involved, redefining the game, taking on other monopolies like Oracle.10gen don’t make it alone, they enable hundreds and thousands of individuals and startups, globally.What I’m talking about is taking it to the next level.Every such startup (like 10gen) should become “vertical kickstarters” of sorts, boosting the communities around the product.Not necessarily kickstarting on money, but for example legal counsel and protection (see the recent Red Hat patents case on behalf of Rackspace)This new type of startup should also actively seek the development and founding of new smaller startups across the world, not just on a technological level.(By the way, this is similar to the way Microsoft built their highly successful developers network MSDN until they decided screwing their developers was a better idea)The nextgen startups know the business they’re in better than anybody else.

    1. LaVonne Reimer

      I’m glad someone weighed in to give the story behind Linux. I would add two things. First, Linus was only able to continue with the project because he found lucrative consulting work. He was not laboring in a garage and living off top ramen. Second, major vendors like IBM took a significant role in bringing some organization to the community. I always had incredibly mixed emotions about that. I think it worked out okay because IBM’ers such as Dan Frye cared about the developer community. There’s a good case study from Harvard on how that worked. I long to believe there is a way for a small group to make the difference in a grassroots sort of way. More often than not it takes hard cold cash to sustain the group and a deep-pocketed champion to carry them across the line.

      1. vruz

        It is true that IBM’s decision to back Linux with a $1 billion investment was a big and bold move at the time. Even if we ignore that money, it was a huge validation event. We can agree or not about the cleanness of IBM’s business methods, but I don’t think anyone can have any doubts about their deep expertise in science and engineering.Later on they opened up Eclipse, funded and founded the Eclipse Foundation, which was huge for developers at the timeA little late to the game were Sun Microsystems (notably opening Java, OpenOffice, Solaris, etc.) perhaps their final saving grace before succumbing to financiers and Oracle.But as they say… that’s a whole another story 🙂

        1. LaVonne Reimer

          You know your stuff! It’s a fascinating area. I’ve been studying it again of late and reconnecting with my open source network. There is a power in how these communities were organized and enabled. I hope to tap some of that for my current startup so as not to feel quite so alone in the garage.

          1. vruz

            Best of success to you and your new project!If it has something to do with FOSS, I’m curious. I’d love to hear more about it when the time is right. My email: [email protected]!

    2. fredwilson

      well i never said linux was made by a startup. but i agree with your overall comment

      1. vruz

        I know, just thought it was important to highlight the difference for those not in the know. Too many startups are not very opensourcey out there, too many consume code and never contribute.

  34. Allen Lau

    Don’t be a parasite if you want to be a disruptor. It is extremely hard to transform an industry if you have a lot of dependencies on the old system. You just have to stay close to your users or customers.http://www.makingthingsouto

    1. William Mougayar

      Exactly. Often old systems run their courses, and that’s the way it is.Incubants hate disruption and innovation.

    2. fredwilson


  35. Dasher

    On the flip side many of these disruptive startups would love to be monopolies themselves if they get a chance. MS was a startup once.

    1. fredwilson

      not sure about that.

      1. Dasher

        I don’t mean official monopolies (that would bring in regulation), but the fine line that companies like google are walking with search. I am sure FB would love to be in that position with social and Apple with mobile, amazon with e-commerce. There are always some exceptions – but capitalism is all about maximizing profits and value for shareholders. Nothing wrong with that.

  36. Jeffrey Hartmann

    The last line in that post really gets to the point that I’m sure drives so many of us here. We are all David’s in a world of Goliath’s. I know I wake up every morning looking for that smooth stone that will crack open the world and make it a better place. Thanks for your perspective Fred, it made me smile today.

    1. fredwilson

      putting smiles on faces is a great thing to be able to do

  37. Christine

    thank you for posting this: “Never doubt that a small startup can take on a huge monopoly. Indeed, it is the only thing that can.”… needed some inspiration to keep slogging away.kind regards,christine

  38. Richard

    But…..Don’t forget your economics… unfettered competition dives the price of goods to be the marginal cost (MC). In today’s economy the MC of many goods is approaching zero, Venture Capital doesn’t like a lot of ZEROS unless of course they are preceded by a “1”.

    1. fredwilson

      that’s not sustainable. the pendulum will swing back the other way.

  39. JLM

    .A subtle distinction that must be made to do justice to this subject is the difference between “perceived” structural monopolies and monopolistic behavior.On the subject of monopolistic behavior — controlling outcomes through artificial market power — one must take a hard, critical look at the behavior of government in picking winners through governmental action.This is the ham handed application of raw power under the guise of regulation or other market controlling forces. It rises to the level of corruption and organized crime that is beyond belief.A huge case in point would be the government’s support of the UAW in the entire Detroit auto industry faux bankruptcy and restructuring.In this instance, the government not only gave the UAW a seat at the table, they gave them the head seat at the table. In an orderly private plan bankruptcy the UAW’s labor contract and benefits would have the first victims of the restructuring and why not? These labor costs had wrecked the companies with the willing acquiescence of management, no doubt.The government not only criminally assaulted the bond holders, they also arbitrarily placed the UAW at the front of the line and filled their pockets with equity beyond their wildest ambitions. It was an obscene exercise in corruption and raw power.What is also fascinating is the manner in which industries have created industry promulgated practices which rise to the level of monopolistic power. I am cautious on this subject because I personally applaud some of this behavior as being a legitimate over reaction to a plaintiff’s bar run amuck.In the securities industry, as a basis for simply opening a brokerage account, one must individually agree not to sue their broker but must refer each and every complaint to binding arbitration before a security industry selected panel of experts.Fox. Hen. House.Why the American Medical Association does not do the same thing as part of its medical practice administration “best practices” — effectively creating their own medical tort reform — is a mystery to me.Similarly, the NRA should get all of its gun manufacturing members to similarly join together to self-regulate guns of all kinds including a provision that one cannot buy a gun unless they do………..The government is the greatest abuser of its monopolistic police and enforcement powers of any entity in the US today.JLM.

    1. Jeffrey Hartmann

      While I will agree to disagree on a few points I definitely think the government sticks its nose WAY. TOO. MUCH. in places where it doesn’t belong. I once wanted to do a Voice over IP venture, but when I started learning about the crazy amounts of regulation and rules, and preferential treatment that the incumbents get just for showing up I decided not to go that direction. I think what I was doing was great, but the labyrinthine laws and regulations were more than enough to discourage me. I’m sure that lots of people have similar experiences they could share. If the government would just get out of the way, and not give crazy deals where the existing player might get something like right of way for a reasonable (or below market cost) and the only way for a competitor to offer service is to buy it at 10x cost from their competition. Fox guarding the hen house indeed, and the examples are endless I’m sure.

    2. fredwilson

      yup. that’s why i put “And our government is pretty good at handing monopolies out” in my post

  40. Geoffrey Vitt

    Not sure how you feel about the prospects of Aero (especially given the Boxee investment) but I am so excited to see if they can pull it off.

    1. fredwilson

      i am rooting for them. competition is good.

  41. Kirsten Lambertsen

    That last paragraph is a keeper. Well done!

    1. fredwilson

      i just took margaret’s quote and rewrote it

  42. TSC

    How do you think this applies to regulated monopolies such as power and water?

    1. JLM

      .Power is slowly but surely becoming less regulated in spite of both industry and government.Water and wastewater will become the next utilities which will be unbundled from government as they become privatized under the press of the economic realities of having nothing left to sell.JLM.

      1. pointsnfigures

        Maybe. But I don’t think so. What’s more valuable, diamonds or water?

  43. ShanaC

    It depends:A benevolent dictator can do more good – I doubt the country would have been electrified or got phone service without sanctioned monopolies. And quality was consistent – which there is something to be said for about.

    1. fredwilson

      we got the internet without a sanctioned monopoly. i think you might be wrong about that. but we will never know. because we didn’t try it.

      1. ShanaC

        no, but we got phone lines to run the internet on a sanctioned monopoly. I don’t think it is an either/or – Just making the point that benevolent dictators make for even quality

  44. Alan D

    Look at the music biz. It’s now dominated by majors… more so than ever. You think the internet “democratized music” you are not in the music biz.





    1. Pete Griffiths

      Everything create weakness.

  46. Pete Griffiths

    In this context it is worth reviewing Peter Thiel’s iconoclastic take on competition and monopoly.Here’s a link to the class he taught at Stanford.

    1. fredwilson

      thanks. will go look now.

  47. Semil Shah

    I went to graduate school for policy and government, and this post explains well why I decided against a career in this arena in favor of working around entrepreneurship.

  48. rhohit

    So, VCs think start-ups will break monopolies, but at the same time they also dream that their start-ups become monopolies in the future? Interesting.

    1. fredwilson

      not true. the last thing i would want is to fund a new monopoly. i believe in the power of competition to make us all better.

      1. rhohit

        I wouldn’t say that is the intention, but nevertheless a VC wouldn’t oppose it, if the start-up turns out to be a monopoly.

        1. fredwilson

          i would. i would finance another company to compete with them. monopolies are bad.

          1. rhohit

            Fair. Wish we had more of you.

  49. Robert Holtz

    Let’s face it: Washington in its present mutation prefers monopolies for the simple reason that they are increasingly less focussed on architecting representative policy. All the infighting across the aisles has reduced it to a group of dealmakers making ad hoc short term quid pro quo arrangements. It is simply easier to strike a deal with a mega-entity to deploy change than to actually get in there and transform an industry through real leadership.Issues like those described take real consensus from a body of people who are all aiming for success. That’s not what we have in Washington at the moment. It is all Red against Blue and Blue against Red, without much regard for actually representing their constituencies or for that matter showing any real vision or leadership as individuals who want to see America succeed.That being said, one of the great things about America is that if you are creative enough and put your mind to the task, you can build a business and change the world. We are still free enough that if you want it enough, that opportunity is wide open to everyone and anyone of age, gender, race, or economics.The good news is, as confused as our government can often get about which way is up at any given time, they are generally smart enough to get out of the way of something that is really working. That’s the disruptive power of the entrepreneur and the opportunity we have to shape our own world without relying on a bunch of baby-kissing politicians to do it for us.There is vast organizing power in a team identifying areas where the public can be better served and bridging the gap with a smarter process or a better value proposition. People will happily surrender their hard earned cash to someone…anyone who addresses a problem (sometimes a problem no one else realized they had) with a clever well-packaged solution. That takes creativity and passion… it takes leadership and vision… it takes an entrepreneur.That’s why the modern startup is our best chance forward… for SO many reasons and on SO many levels.

  50. Marius

    Any person in this world has a chance to start a company whether it be online or offline . Some fields are much harder to tap into but not impossible.

    1. Marius

      Keep competing and don’t sell out.

  51. sbmiller5

    “Never doubt that a small startup can take on a huge monopoly. Indeed, it is the only thing that can.”Quotable

  52. Silver Hage

    Isn’t the irony here that many of the small startups strive to become monopolies themselves?