A look at the effect of mergers and acquisitions
Many pessimists believe that the internet will stay very unprofitable and that only a handful of participants will make money. Well, thanks to mergers/acquisions and the laws of supply and demand, this will most likely not be true. The laws of supply/demand say that as supply goes down, prices go up. When companies merge and acquire others, the companies will work together to keep prices from competing with one another or go to low. When I say prices, this may mean advertising rates or subscription fees. If you look at history, some of the worst industries have become extremely profitable by controlling supply of competitors via acquistion/merger. If you read the book Titan, which you should, it talks about Rockefellors rise in the oil industry. The industry was highly speculative initially and was formed to be a substitute product for whale oil which was in short supply. The industry was initially very profitable with low barriers to entry. This changed very quickly and it became unprofitable for most as the competitors rushed in. This was when Rockefellor stepped in. His partners and others thought he was crazy for stepping in to such a bad industry. However, Rockefellor's penny pinching allowed him to produce a profit and to acquire other oil companies and to develop economies of scale, which lowered costs and allowed him to crush competitors. While doing this, Rockefellors market share in oil kept rising. He also built his own pipeline and did everything in his power to kept others from doing the same. By controlling a large percentage of market share or supply, it allowed him to kept prices high. This will probably happen with many industries on the internet. Some of these markets are so small that they escape the eyes of the Department of Justice. By doing similiar things as Rocefellor did by controlling costs and watching market share, many of these companies will develope into profitable niches and will be able to demand higher advertising rates or subscription fees. This is not usually good for consumers, but it is good for investors. The solution that the government seeks and most seek is a competive market. However, they also want companies to be able to operate profitably as well. If companies fail to operate profitably, quality suffers and so do consumers. So, some extremely competitive markets are regulated by the government to control supply. That is why some farmers get paid by the government to not plant crops. By doing this, it increases the price of the crop for the rest so that they can operate profitably and use the profits to innovate further. The point of this is that you can have an extremely unattractive industry and make it a profitable one via mergers and acquisitions and by doing other things.
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