The word for today is consolidation. (The illustration is from a report on market consolidation in the business intelligence software business, from The OLAP Report.)
It is a very bad word, scary in fact.
Let's use it in a sentence, shall we?
Many analysts have expected consolidation as companies opt to buy security products from fewer vendors to lower costs and the complexity of integrating the products they buy.
Why is consolidation such a bad word?
Because it means that innovation is over, that the business is now about squeezing out profits. Unemployment inevitably follows. So too does bad service.
When businesses consolidate consumers have fewer choices. It's harder for them to go somewhere else when they're pissed off. This creates an enormous financial incentive for companies to do just that. And they do.
What's the cure for consolidation? There's really only one.
Innovation. (Innovation .gif from the University of Delaware. Go Blue Hens!)
The trouble is that the marketplace doesn't work toward innovation, but toward consolidation. And once there are a few big players in a space, innovation becomes more difficult. Innovative small companies are likely to be bought by the larger, consolidated players, at which point their offerings are subsumed into something larger-and-crappier, while their best people take the money and run.
Government can work to minimize consolidation and support innovation, but it has seldom done this.
The standard way to deal with consolidated businesses is with regulation. Make 'em be nice. The result is either a lot of money going to lawyers on both sides, or (more often) the consolidated industry co-opting the government, as has happened in telephony (and thus broadband Internet service.)
A better way is to emphasize competition. Government should guarantee continuing competition, as the price for keeping regulation light. Without that guarantee, as we've seen, small guys get run over, consumers get run over, and even government gets run over.
This is a message small businesses should understand. If groups like the NFIB won't listen, innovative small businesses need to find new organizations to support.
Dana Blankenhorn has been a business journalist for over 25 years and has covered the online world professionally since 1985. He founded the "Interactive Age Daily" for CMP Media, and has written for the Chicago Tribune, Advertising Age, and dozens of other publications over the years.
1. Brad Hutchings on June 3, 2005 06:00 PM writes...
I cannot think of a better way to guarantee consolodation and lower innovation than to threaten regulation where it occurs. Every entrepreneur needs to have an exit strategy. The best entrepreneurs know how to bootstrap and know when to let go. Having a market for companies developed from scratch or improved is what makes entrepreneurship worth doing. It's what makes investing in innovative startups worth the risk. Without capital and entrepreneurs to bring innovative ideas to market, the only vehicle would be the big, conservative, established companies.
Another thing Dana... sometimes the product itself doesn't need to be so innovative, but the delivery mechanism or price point can be disruptive. That is supposedly the attractiveness of open source software, right? See something cool but proprietary, wring hands, sign up volunteers, undercut the commercial price. FSF wants to do it with Flash and Java, no product innovation added at all! There are plenty of commercial opportunities like that that someone who isn't an entrepreneur and doesn't have his fingers on the pulse of a particular market segment could never see. A so-called regulator or competition optimizer on the public dole most certainly couldn't gleen such information from the market or he'd be doing something useful like being an entrepreneur ;-).
Your preoccupation with competition as the proxy for market health is as misguided as various activists' preoccupation with weight as the proxy for body health. A good indicator of a bad business plan is one that primarily offers consumers "another choice". Have a good reason for offering another choice, a distiguishing characteristic that has perceptable value. Even with stylistic choices, most people don't buy quirky stuff to be different, they buy quirky stuff because they like it. If a certain market is mature enough that as few products get it mostly right, there may not be a need for different that the marketplace will reward. And if no reward, no reason to do something just to be different.
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