Roku IPO Reminds us Tech is an Oligopoly


Roku is a company that defied the odds – competing in a market with Apple, Google and Amazon and somehow persevering by making superior products in what is without a doubt a highly commoditized space. To make matters worse, Google and Amazon really don’t seem to care too much about profitability – Amazon in general and Google/Alphabet for its businesses beyond search.

Still, despite the challenging competitive environment, Roku has persevered and done well.

The company’s investors are about to partially cash out via an IPO and in its filing documents it tells us that two of its most popular services, YouTube and Netflix pay them virtually no money.

Tech is an oligopoly of sorts. In 2015, Om Malik wrote about the winner-take-all nature of Silicon Valley.

Here is an excerpt:

This loop of algorithms, infrastructure, and data is potent. Add what are called network effects to the mix, and you start to see virtual monopolies emerge almost overnight. A network effect occurs when the value of a product or service goes up with the number of people using it. The Ethernet inventor Bob Metcalfe called it Metcalfe’s Law. Telephone services, eBay, and Skype are good examples of the network effects at work. The more people who are on Skype, the more people you can call, and thus the more likely it is that someone will join.

He was right but its interesting now to see the winners in each category coming after one another – where possible. Facebook native video has taken share from YouTube. Google is competing on same-day delivery with Amazon. Amazon is competing in UC with Google and Microsoft. The list goes on seemingly forever.

Still though, Netflix has a strong position in content as does Youtube. Roku can’t force either to pay them much to be placed on their devices and in their ecosystem because consumers need both services.

This puts Roku in a tight spot.

Content of course is king which is why Amazon and now Apple are investing in the space.

Will Roku need to become a major content producer to monetize itself more effectively? Perhaps.

Still, the point is tech is an oligopoly in many cases. A few powerful companies with super-deep pockets own various markets.

Competing among giants isn’t easy. Roku has done an amazing job. Can they keep it up and eventually gain enough device share so as to become part of the big boys oligopoly club where they will have the leverage to force the content producers to pay them for placement? Time will tell.

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