excessive competition, china, and social media glut

China is going through huge growth, about 10% a year. While there remains a huge part of the country to lift out of poverty, one would think that this amount of growth would result in plenty of opportunity for everyone to make a good deal of money with less competitive pressure than in ‘mature’ markets. But apparently in some areas, the opposite is true; since the plants are partly owned by the government (and the managers not entirely responsible for keeping costs below income), they will sell products below costs in order to compete with other plants. This is, according to the article I read (“Ownership Distortion, Low Level Technology, and Excessive Competition,” by Jie Ma and Weiying Zhang), the economic state of “over-competition,” where too many competitors end up compromising the market and their own viability.

This rings a bell, because in a venture-capital fueled, social-media start-up frenzy much the same condition exists. 35 life streaming apps. 4,324 photo/video sharing sites. 321 twitter clones. Countless business-vertical mashups (102 travel business mashups alone). Why will any of these gain enough traction to garner general use (and “change the world” as their entrepreneurs like to say) if the market is in this crowded state and the owners are not risking their own money? Is this lottery-like state really an ok but brutal winnowing process, or more like the airline industry’s race to the bottom?

For example, two competing commenting platforms in the same market causes some upset as one tries to market to the others’ users. When so many blogs are being added all the time and the phenomenon is going mainstream, there should be plenty of room for at least two products. Instead, there are an overwhelming number of choices (who has time to sort through 14 options?). Decision theory says that “more choices may lead to a poorer decision or a failure to make a decision at all”, losing situation for all these creative, hardworking start-ups.

So what’s the alternative? I think the collections of start-ups in overlapping spaces should, as quickly as feasible, abandon the idea that they can create the be-all, end-all (e.g.) social shopping user base and content silo that will crush competing sites. Instead, they can open-source the basic containers and objects (much as Open Social and OAuth have done in one discreet area). That way, the personal data is by definition portable and owned by no company, and start-ups that aren’t really, functionally different will have a shorter life (and I will never have to upload my profile picture again, ugh), and the viable sites will have a clearer shot at being viable businesses. What is the likelihood of this happening? Probably not so great, but these are the same geeks who advocate the Linux model for operating systems (where an app can be easily recompiled in the different distributions, and each distribution can use parts of others). There’s really no reason other than a kind of protectionism not to extend this to Web applications.

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