I've recently started reading some of Peter Drucker's work. The man is brilliant and is rightfully hailed as a thought leader in business management. The 2009 book "The Essential Drucker" concisely summarizes his many decades of work. Early in the book, he speaks of monopolies and their impacts on business. He isn't saying monopolies are bad for consumers, which is obviously true and well-known. He claims it is bad for the monopolizer, too.

Drucker first emphasizes the importance of considering both sales and market share together, rather than focusing only on one. If revenue is increasing but market share is not, the overall market is growing faster than you are, which is certainly bad. That means less influence over the direction of the market and weaker market penetration. If your market share is growing but sales are declining, competitors are exiting from what is probably a shrinking industry. You likely don't want to stick around for long.

The real question is, are these conditions both decidedly negative outcomes? I'll paraphrase Drucker's example using some numbers. Suppose you monopolize 100% of a product market that brings in $100 of revenue annually. You are the "old guard" with nothing but cash cow products and no capacity to innovate. The market has been stagnant for years ... why change it? Along comes a competitor with a superior product and, within a few months, takes half the market. Bad news for you, right?

Maybe not. If the new product is so much better and there is a market demand beyond the original market size, the market will grow. Suppose the market triples in size and you retain half of the market. You'll likely begin some product development efforts to remain competitive now as the market continues to expand. With a market now worth $300 total at a 50% share, you have $150. That's $50 more in your company coffers than when you monopolized the market. This is the essence of Drucker's argument. The growth of the market means better business profitability for both companies. Even with half the market share, you can still drive the direction of the market through open competition.

Although I don't work in the smart phone industry, I've long believed that the duopoly between iPhone and Android fits into this model. Had there been only one product choice, the new innovations with each successive model over the past decade may not have happened at all. I believe that competition has caused the market to grow exponentially and all market players have been richly rewarded. True, today's smart phone market is sluggish due to saturation in specific geographic regions, but would the introduction of another competitor cause the market to grow again?

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