The network business provides the best possible justification for Bruce’s theory. With a network business, the leader’s cost position keeps improving, but so does the product, simply because more people are attracted to the network. Even if there are no new initiatives by the firm, the leader’s product should keep improving over time. Smaller rivals should attract fewer new customers, or perhaps lose some of their existing ones. The rivals’ products will not improve at the same rate as the leader’s, and may even decline as customers fall out of the rival networks. We should therefore expect something close to what Bruce called ‘benign monopoly’ to arrive eventually. And if the leader in a network business does not increase its market share steadily, there is something wrong with the way the firm is being run.
So what we know about networks suggests that in an increasingly connected world, within most categories of product or service, we’ll see an ever more concentrated world. This seems to work in business, where market shares of the leaders in network businesses–in most online categories, for example–tend to be higher than in markets which are not networks, such as most manufactured goods. But does it work in everyday life? Let’s examine a few familiar aspects of our daily lives–language, money and cities–to see how pronounced concentration is, and whether it’s increasing or declining over time.
First, language. It’s one of the most basic ways people connect with each other. It’s also easy to imagine the initial fragmentation of languages, how they might have multiplied over long periods of time as groups of people migrated across continents and then lived in relative isolation, separated by mountains or rivers.
Imagine, for instance, the bewildering profusion of tongues and dialects Meriwether Lewis and William Clark encountered on their epic voyage of discovery into the uncharted and sparsely populated American West in the early 1800s. They were the first white men to travel the length of the Missouri River in search of a route to the Pacific, and they came across a plethora of tribes and languages–Mandan, Cheyenne, Hidatsas, Sioux, Pawnees, Lakotas, Nez Perce, Cayuse, Blackfoot, Piegan, Wishram, Yakima, Wananpam, Shoshones and Salish.
What do you think happens to such isolated languages when contact between peoples increases rapidly, when it becomes an advantage to speak in a way that lets you connect to more people? Dr Michael Krauss, one of the first academics to investigate ‘language death’, has estimated that there were about fifteen thousand human languages ten thousand years ago. Today, there are only six thousand. He predicts that in another hundred years there will be only six hundred–nine out of ten will have disappeared, an average of one language perishing every week!
Language concentration, Krauss says, is accelerating geometrically. Why is this happening? The initial motive for language is communication between parent and child, so we might expect all languages to be preserved. But what happens when people learn other languages and they are translated into each other, when they are linked by travel, commerce and telecommunications? A speaker who wants to be understood outside her country will most likely learn a language that is already widely spoken. This naturally favours languages such as English, which are already popular as a second language. English, with about 375 million native speakers, is ranked a distant third in the world as a first language, well behind Mandarin Chinese (885 million) and Hindi (600 million), and is only just ahead of Spanish (350 million). But three times as many people speak English as a second or third language as speak it as their first, whereas there are far more native speakers of the other languages than there are foreign speakers. The demand for English as a superconnecting lingua franca and as the official language of science, aviation, sea-faring and many international organisations propels it to a commanding lead when all speakers are aggregated: about 1.5 billion people speak English well enough to hold a conversation; no other language even approaches a billion. As many readers will know, teaching English as a foreign language is a growth business around the globe. So, whereas demographic growth might soon make Spanish the third most spoken native language and relegate English to fourth, English is expected to continue to increase its lead overall. Linguistics professor David Crystal predicts that globally English will both diverge and converge–local variants will grow, requiring a form of standard international English to emerge so that all English speakers can understand each other.73 Simple international English, perhaps with easier phonetics and spelling rules, might then further increase the superconnecting value of the language and consolidate its global lead. It becomes increasingly easy and beneficial to be linked by the biggest hub–in this case, language–in the network; schools and adult learners will respond accordingly.
But whatever happens to the number of English or other-language speakers, we can think of language as a ‘virtual’ hub connecting everyone on the planet, starting with the connection between native speakers, then radiating out through connections made by those learning a foreign language. If everyone can speak a language–any language–that someone else around them can understand, humanity is connected in a new way, so the desire for communication naturally advances already-popular languages and relegates those that few people can understand. Picture all the people in the world joined by a line or lines to hubs denoting every language they speak, and we’d have a chart that looked suspiciously like the maps of the Internet drawn by Barabási and Albert. And that chart would probably become more lopsided, more dense in a few superconnecting places, over time.
Another great connecting invention–and another virtual hub–is money. It lifts commerce and trade above the constraints of barter by providing a medium for exchange and a store of value. Much like language, it’s easy to see that a particular type of currency doesn’t have much utility if only a few people use it; but if it is universally accepted, it becomes very useful indeed. Here’s an understandable bigger-is-better dynamic, suggesting that the currencies of the world might well concentrate as time rolls on–a few superconnecting currencies will become more important, particularly for trade and international reserves, other currencies will disappear entirely, and most will fade in importance.
Again, recent history bears this out. Despite each country promoting and protecting its own currency, the US dollar is by far the most widely held international reserve currency, making up about two-thirds of all world foreign exchange reserves. In fact, over half of total US dollars in issue reside outside the United States, and several other countries use the greenback as their de facto currency.
The rise of the second most important currency in the world–the euro–is a story of even more dramatic and rapid concentration. Prior to 2002, twelve of the largest countries in Western Europe had their own currencies. All of these suddenly disappeared on 1 January 2002, and they are now just relics hoarded by numismatists and perhaps a few isolated peasants. Gone are some of the most redolent and proud currencies in the world, including the German mark, the Spanish peseta, the Italian lira, the French franc, the Dutch guilder and the Greek drachma, not to mention the Finnish markka and the Portuguese escudo. And the euro is still making converts. In 2007, the Slovenian tolar bit the dust; in 2008, the Cypriots and the Maltese abandoned their centuries-old pounds; and in 2009, the Slovak koruna followed them into the currency dustbin. The euro is also the sole currency of Montenegro, Kosovo, Andorra, the Vatican, Monaco, San Marino and five non-European states, and it is widely used in Cuba, North Korea and Syria. It now surpasses even the dollar in the value of cash in circulation, and, although still well behind the dollar as a reserve currency, it is gaining ground. In 1995, the US dollar and the (now defunct) German mark made up three-quarters of the world’s currency reserves, with the hundreds of other currencies sharing the remaining quarter. Impressive concentration! But by 2008, the euro and the US dollar between them provided 91 per cent of all currency reserves, with only 9 per cent shared between the other currencies. Once again, very high concentration has led to even higher concentration–to the almost total dominance of two currencies in international reserves. If we add in the pound sterling (4 per cent of reserves) and the Japanese yen (3 per cent), just four currencies out of the hundreds in circulation constitute 98 per cent of reserves–it is a 98/2 rule, with 2 per cent of currencies comprising 98 per cent of reserves. These numbers are similar to the concentration patterns we see on the Internet: Google and Yahoo in search engines, Amazon in book retailing, Wikipedia in encyclopedia searches, eBay in auctions.