Winner Take All Markets Have Clear Business and Regulatory Implications

Winner take all is a description of a type of market where the best performers--and typically only a few firms--are able to capture a very large share of the rewards, and the remaining competitors are left with very little.

Some would point to modern retailing and the rise of Wal-Mart as one example of a winner take all market.

Many would say the music industry, and digital information or content businesses, increasingly take on a “winner take all” character. Some argue that is true in large part because information technology now allows any single firm to reach huge markets, affordably, compared to what was possible in the past.

That means the very best supplier in any industry affected by economies of scale--and that is most industries these days--will do disproportionately well.

Some might argue “winner take all” economics easily can arise in industries where fixed cost is high and marginal costs are low.

If that sounds familiar, it is because that is the structure of the global telecom business as well. “Winner take all” might be expressed as the “rule of three,” describing the typical national telecom market which is dominated by no more than three providers.

One example is the new concentration of revenue in the mobile advertising business.

For observers long accustomed to the relative fragmentation of advertising revenues and market share across television, radio, newspapers and magazines, the extreme concentration of mobile advertising revenue is shocking.

Facebook and Google accounted for about 67 percent of all global mobile ad market revenue in 2013, and it is projected that Facebook and Google will earn nearly 69 percent of all global mobile ad revenue in 2014.

Between them, Google and Facebook earned 75 percent of the $9.2 billion in incremental global mobile ad revenues in 2013 ($6.92 billion), according to eMarketer .

That's one example of a "winner take all" market. Of course, there are implications for regulators responsible for oversight of communications markets. To the extent the theory holds, only a few firms will dominate every telecom market, eventually.

That tendency to "fewness" will be relevant in coming days as much of the global communications business consolidates. The point is that, no matter what, a truly competitive market will eventually consolidate into leadership by just a few companies.

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