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Monopolising the internet? - Views on News from Equitymaster
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  • May 8, 2009

    Monopolising the internet?

    When we talk of natural monopolies, the usual suspects tend to be utilities like power, gas, waterworks etc. Dominant firms in such industries can easily notch up huge market shares and thwart competition. No wonder then, these industries tend to be regulated around the world.

    According to CNNMoney, US regulators are beginning to wonder if Google is a natural monopoly. That seems like a bit of a stretch. After all, isn't the internet a perfectly competitive market place? But 76% dominance of the search market does raise the question whether there's more than meets the eye. However, the company presents several points in its defense. First, 'competition is just one click away'. If internet users turn to Google, it is due to the power of habit and not because the company prevented them from turning to other search engines. Second, it doesn't lock anyone into its software like Google Docs. The software formats are open, so users can move content to rival products.

    Because of these reasons, regulators have not been able to make a convincing case so far. Their best chance would have been if Google partnered with a rival like Yahoo. But that's not on the cards. For now, everyone simply has to acknowledge the fact that it is a great business - with a strong competitive advantage.

    US Inc. invests in India, despite Obama
    Obama's 'Buffalo, not Bangalore' remark was aimed at U.S. companies taking advantage of US tax rules despite substantial overseas operations. That has not stopped Honeywell International from opening its second R&D centre in Bangalore. The company makes jet engines and home-security products. In fact, its CEO, Dave Cote, has said, "We are committed to India as a manufacturing location, export hub and most importantly, as a center of engineering and R&D excellence". He adds, "Our presence here has grown from 1,000 employees in 2002 to 10,000". Given that the company projects its revenue from India to almost double to US$ 1 bn in the next 3 years, the company can hardly be expected to toe the Obama's protectionist line. India became a destination for US Inc. because it made compelling business sense. It will take a great deal to reverse the process.

    Another air service
    As per a leading business daily, Jet Airways will start a new no-frills carrier called Jet Airways Konnect. The fares for the service will be 10% to 15% lower than the normal Jet Airways economy fares. The company has not launched the new service under its JetLite brand due to pending litigation with the Sahara group. It may be noted that market share of the more expensive full service carriers has fallen due to the economic slowdown.

    We believe the airlines industry is value destructive. As Warren Buffett once said, "Should you find yourself in a chronically-leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks." If only, our air carriers paid heed.



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    Aug 18, 2017 02:28 PM