Wednesday, November 9, 2016

The Monopolists' Manifesto

Alex Moazed & Nicholas L. Johnson, Modern Monopolies: What It Takes to Dominate the 21st-Century Economy

Let's start by eliminating a source of confusion that fuddled me, and probably you too: this isn't a book against monopolistic business practices. Our authors don't disparage market consolidation (two conglomerates control two-thirds of America's beer distribution, for instance). Moazed & Johnson consider monopoly the bright shining future, provided it's the right monopoly model. And that model, for them, is platform business.

Yeah, I didn't know what that meant either. From the beginning, they define platforms as “a business that connects two or more mutually dependent groups in a way that benefits all sides.” Um, that sounds like commerce to me. A later explanation of eBay clarifies for me that they mean platform businesses create centralized meeting points where commerce happens. They make their profit licensing their location. Some entrepreneurs own individual stores; platform businesses own the whole mall.

Besides defining platform businesses (as opposed to platform technologies and industrial platforms—I admit, it’s confusing), Moazed & Johnson provide a thoroughly source-noted explanation of how their business model plugs gaps in market economics. By diffusing production and distribution decisions among multiple producers, they assert, they allow ground-level producers to deploy real-time decentralized knowledge to market circumstances.

Though admittedly well-founded, this model encounters problems under scrutiny. First, many “platforms” don't behave like they describe. Our authors extol platform businesses for eschewing supply chains and warehouses. Yet their list of lucrative platforms includes, which has warehouses in twenty-four U.S. states, two Canadian provinces, and multiple other nations. Clearly their definition isn't exclusive.

Nicholas L. Johnson (left) & Alex Moazed

Second, platforms may themselves lack linear distribution structures, but the businesses they connect don't. eBay doesn't store or ship products themselves, but their vendors do. Therefore, dismissing linear business models as retrograde, as these authors do, misses an important point: the digital platform model only works as an adjunct to traditional businesses. Newfangled platforms may add value, but don't supplant older structures.

This added layer imposes a quantitative cap on platform businesses, too. Assuming server capacity, digital platforms’ peer-to-peer connections are hypothetically infinite; but their content providers aren't. Each individual Über driver, Etsy knitter, and Twitter writer can provide only one service at a time. Thus, platform businesses have potentially infinite profit capabilities off IRL providers’ necessarily finite outputs.

I don't blame you if that sounds rather abstruse. This book goes down similar cow paths in constructing its fairly intense pro-platform arguments. The economic argument is very dense, bolstered with charts and histograms. As a Distributist, I dispute some of our authors’ premises—though too minutely to explain in a 750-word review. The reasoning is generally sound, but not light bedtime reading; expect your attention to wander occasionally while reading.

Moazed & Johnson are thought-provoking, and shine light on an unexamined, up-and-coming element of the digital marketplace. Yet I can’t get past certain complications. For starters, their love song to monopolistic market domination should give historically literate readers the heebie-jeebies, remembering how John D. Rockefeller created artificial shortages to submarine market forces. If, as our authors insist, free markets rule, we should worry about anybody hoping to monopolize, and render un-free, any market.

Then, even if these “monopolies” are transitory with evolving technology, as our authors acknowledge, they create a bottleneck that potentially squeezes vulnerable producers. Moazed & Johnson repeatedly cite Über; critics have asserted that Über aggregates profits upward, while front-loading expenses onto providers. Platform businesses’ impact on the economy is, to put it lightly, controversial, and this book won’t change many minds.

My most concise criticism, though, comes before page one. Facing the copyright page, the authors include a blurb for their business, Applico, a platform entrepreneurs’ consultancy. Most business books are, fundamentally, billboards for their authors’ consultancy services, and that includes authors I’ve praised, like Jonathan Raymond recently. But Raymond advertises principles he can help you implement. This book is a love song to its own authors.

That doesn’t mean its content is wrong. Moazed & Johnson offer well-documented, thoroughly researched evidence to back their position, and even without their consultancy, platform entrepreneurs could apply many principles to their business design. But this book is much more dependent on its authors than Raymond’s, which explains why, between the good evidence, they pay scant attention to counter-claims.

I can’t completely recommend against this book. Savvy business professionals can utilize its principles to stay abreast of changing markets. But reading it, without its authors present to question, requires a pre-existing familiarity with business and economic fundamentals; shoestring entrepreneurs shouldn’t jump in cold. This book isn’t wrong; it just requires a cold, distant eye.

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