March 12, 2015

“Hey dude, who’s that actor, you know, the one who’s in everything, the guy from The Truman Show, but not Jim Carrey? I think he’s on The Americans now.”

“I don’t know, just AskJeeves it.”

That is an exchange that has probably never happened in human history. Not necessarily because people know who Noah Emmerich is, but because AskJeeves has been consigned to the dustbin of failed companies, right alongside Pets.com and RadioShack. They've ended up in this trash-heap because other organizations have outmaneuvered them and taken their place. William Barnett, a business professor at Stanford, says this kind of competition makes the businesses world stronger, and he studies how clashes between organizations shape our world. We took away a few key points from our conversation with him:

Monopolies are good for individuals, but not for society in general.

“Some people will remember just a few years ago, that there was a great wringing of hands because we were breaking up the telephone company, which people thought at the time was a natural monopoly. There were dire predictions of the end of telecommunications as we knew it. Of course, if you were to look back now, and say what’s been one of the most innovative sectors of the world economy, it would have to be telecommunications. And that’s precisely because we’re allowing competitors to redefine the game as time goes on. So clearly monopolists get rich in the short run, but in terms of a dynamic that produces change and improves the world through innovation, I think there’s no question that competition is essential.”

Even smart companies can fall behind the times

“What’s tough for established firms is that they got good under a certain logic. So they end up out of date not because they’re doing things badly, it’s precisely because they’re doing things well, but the logic under which they’re operating is so different they’re unable to compete with the new logic. And that’s what makes our economy vital and vibrant. It’s tough for the firms that are hurt, but the net of it all, far outweighs the losses in the big picture of things.”

Companies going under isn’t necessarily a bad thing - it’s natural.

“When we see failures happen, and when we see firms losing in a game of competition, those losses lead to the release of resources. Capital, people can be laid off, sometimes whole departments, physical facilities. Those don’t go away, they don’t turn to ashes. And if an economy has new foundings taking place and new business models being created, those resources feed the process that some people refer to as creative destruction.”

Business, William Barnett, higher ed, competition, stanford

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