The assertTrue blog has an interesting post on market share leaders in the physical and Internet worlds. The writer points out that in the physical world there are usually two to three companies that control the market as measured by market share. McKinsey made the same point in the 1980s. In the Internet world, to date, there is usually one dominant company and then a bunch of also rans. Examples include Google (search), Facebook (social networking) Amazon and Netflix.
If this change in market share dominance is correct, the question to ask is why does a sole Internet company in a market dominate? I think there is one principal reasons:
Comparatively low capital requirements to enter the market and to scale rapidly
Internet businesses are not as capital intensive as physical world companies and therefore can achieve dominant market positions faster. With the notable exception of Apple, Internet companies do not have to invest in stores. Few have warehouses or any significant sales forces. Little investment is required for logistics after the server farm is established. With Amazon Web Services such investment is turned into a marginal cost. In summary, low startup capital and limited capital requirements to scale characterize Internet companies and explain why a single company can dominate a market segment. First to find product/market fit combined with a limited capital constraint allow Internet companies to achieve dominant market positions faster that can not be displaced.
