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Does This Sound Familiar? 2

What companies stand out as the huge unassailable (for a while) monoliths of this century? In the United States I'd list:

American Telephone & Telegraph 1875-1980
IBM 1930-1970
Xerox 1960-1970

Now consider that during the time that each of these companies was in a position of total dominance of its market, it delivered its product, which was fundamentally a piece of hardware, as a service, almost entirely on a rental or subscription basis. This, combined with a dominant market share obtained either by getting there first (AT&T/Xerox) or by blowing away less-serious competitors with a massive sales organisation (IBM in computers after 1948), largely insulated the base revenue stream of these companies from business cycles and competitive threats. The annuity-like revenue base, in turn, allowed them to make large, long-term investments in technology relevant to their business (Bell Labs, IBM Research Labs, Xerox PARC) and in product development aimed at further distancing them from their competitors.

Note that in each of these cases the subscription/rental nature of the revenue stream allowed these companies to subordinate technological progress to the needs of the business. Unlike a free-for-all like today's RAM chip or hard disc market, where product generation times are measured in months, AT&T could introduce direct dialing, direct long distance dialing, electronic switching systems, etc. on a decades-long plan geared to optimising their profits. IBM was not forced to rush out the 7094 or 360 under the gun by competitive fears--they could switch their rental base to a new generation at a time of IBM's choosing, when the technology was ripe to increase their revenues and earnings. In short, when a company achieves a stable subscription base, it calls the technological shots in the market. Of course if a company is complacent, it will eventually be knocked out, but you have to be awfully complacent and/or incompetent to nullify the benefit of a 10 to 1 advantage in product development and marketing resources (Xerox, of course, demonstrates that it can be done, but in the other cases it took government action or fear of government action to displace the dominant player).


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Editor: John Walker