Comment by chrisseaton | Hacker News Reader

Comment by chrisseaton | Hacker News Reader

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> It seems that making good backroom software, to use internally, has become something of a natural monopoly. Creating such IT has large fixed costs and big random factors.

I can't understand this. Google, Amazon, Facebook, Apple, Oracle, Microsoft, countless others, all have their own huge backroom IT software projects.

Which one of them is supposed to have a monopoly on it?

People just seem to throw around 'monopoly' to mean nothing more than 'some large number of companies are able to achieve some things that others aren't'. Some other people just seem to use it for 'company that I think is too successful'.

There's no point in the word any more.

I think part of the problem is people feel free to define the group that can have a monopoly in any way they want. Is the intention here that 'large talented companies' have a monopoly on backroom IT software? If we're going to define groups however we want I can say things like 'people who are good at football have a monopoly on playing football professionally'.

>There's no point in the word any more.

There is a point and your confusion is frequent one. Let me clarify.

When a economist like the author uses uses the word 'monopoly', it's shorthand for 'monopoly power'. It's obvious from the context of the discussion what he means. The confusion arises when people know the definition of pure monopoly (single supplier) but don't know what is monopoly power.

Between pure monopoly and perfectly functioning markets there is a large area with varying degrees of monopoly power.

There are different ways to quantify the monopoly power. One is using market power and Lerner index. In perfect markets Lerner index would be zero. In practice it rarely is. https://en.wikipedia.org/wiki/Lerner_index

Internet economy generates large companies with monopoly power trough the network externalities. Dominating companies create barriers to entry for newcomers. If the value comes from being connected to others, the platform that connects gets most of it's value from the number of customers and economies of scale, not from being technically better. (of course, after you have the economies of scale you can hire the best people to keep up).

Classical Natural monopolies like railway systems, telephone and electric networks are often regulated to preserve markets. Platform economies have similar attributes.

Yeah, Hanson phrases this idea poorly. It might be better to say that creating large backroom software has something of a high barrier to entry. For instance, popular packages like DynamoDB (internal to Amazon.com before public release) and TensorFlow (internal to Google before public release) make certain types of work easier and more efficient; they’re also large enough that they couldn’t easily be reproduced by smaller competitors. Those companies had to pay the said “large fixed cost,” as well as a continuous cost for maintenance, to develop those tools. Economies of scale play a related role here—the more engineers you can afford to hire, the less you have to outsource and the more you can create in-house solutions that can be reused companywide and ultimately give you a competitive advantage long-term.

In fairness to Hanson, a natural monopoly is distinct from a “monopoly” in the popular sense. Public utilities are often natural monopolies—for instance, a city might have only one power company because it doesn’t make sense to build the redundant infrastructure for two power companies. Doing so would incur a high, unnecessary fixed cost. [1] I think Hanson’s trying to draw an analogy to such firms, though I find it a bit loose.

[1] https://en.m.wikipedia.org/wiki/Natural_monopoly

The better word is oligopoly (which is hard to argue that they're not). Just because there is no clear single winner doesn't mean that there isn't a problem. The biggest problem of any -poly (duopoly, oligopoly, etc) is that they're almost guaranteed to lead to monopolistic behavior without government intervention usually in the form of regulation.

The really good stuff tends to make it's way onto the market anyway. That's pretty much the entire business model of AWS. They make the tools that Amazon wants, and then sells them to everybody else too, and they go to extreme lengths to make sure they suit their AWS customers too.

I thought the article was pretty clear on what the issue is. A lot of capital is going into building proprietary IT and society would benefit if more people could make use of it.

It's a bit silly. That's like saying a lot of capital is going into proprietary plumbing and society would benefit if more people could make use of it. The software is implicitly linked to the people and processes.

Open source software development absolutely has a purpose. Licensing absolutely has a purpose. But generalization is a well-known cost for those in tech, and marketing is a well-known cost at general.

I don't think that anyone is claiming that there aren't tradeoffs. You seem to agree that there are times when licensing provides a benefit to society that outweighs the cost of generalization. I don't think it's silly to suggest that companies aren't always in the best position to weigh their own costs against the larger benefits to society.

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