It amazes me that Henry Blodget still has an audience, given his track record, but that they seem to be tolerant of his spouting nonsense, as in this post on Google. He is also an example of the bad incentives in the investment industry.
Blodget compares the size of Google search business with Microsoft's Windows business. One of his first observations (in a bullet point and in bold, just o make sure you get it) is that both businesses are natural monopolies. Even better he specifically excludes the Google Adsense advertising network, which does benefit from strong network effects.
Alan Patrick at Broadstuff has already posted the obvious refutation of the idea that search is a natural monopoly. It is easy to switch search engines. Google will only keep its dominance as long as it can convince users it is the best. I would also point out that search engines have come and gone before: remember when Altavista was the major search engine? I also think that the operating systems market is not a natural monopoly.
Microsoft certainly has a monopoly. However it is perfectly possible to imagine the market for operating systems that is not a monopoly: in fact, this is how things used to be, it is now things are outside the PC market, and it easily could be so again in the PC market.
How else could the market work? Operating systems could be supplied with, and tied to specific hardware. Apple still does this, and it is what every used to do. Multiple operating systems could co-exist with multiple vendors. This happens in the server market: some servers run a proprietary operating system tied to the hardware, some run Windows, all can run Linux. Much of the application software for servers is cross-platform (written to run on multiple operating systems), which greatly weakens the network effects. Devices smaller than PCs (PDAs, mobile phones, etc.) also have multiple competing OS vendors (although each piece of hardware is usually tied to one OS) and Linux has made some in roads on the bottom end of the laptop market (Asus's Eee PC etc.).
Yes, Microsoft does have a well entrenched monopoly that is not going to suddenly collapse. This does not make it a natural monopoly.
The rest of Blodget's post merely establishes (with lots of graphical embellishment) that both Google and Microsoft have high margin products, Google is growing faster, Google is bigger than Microsoft on the internet, and Microsoft is bigger overall. Thanks for the surprises Henry! What will you reveal next? That Intel sells semiconductors and Nokia sells mobile phones?
Apart from getting a ready audience for “analysis” of this quality, Blodget seems to be doing pretty well. He writes for some well know web sites, he runs a “business analysis and consulting firm” called Cherry Hill Research, and he has what is left of hist millions after paying the $4m to settle (civil) charges. He has been banned from the securities industry for life, but he seems to be doing better than, for example, most fund managers who lost their jobs for under-performing by staying out of the dotcom bubble. No, why exactly should anyone bother to serve customers any better than he did. The rewards seem to far outweigh the risks.
All this also ties in with the post I wrote yesterday on my personal blog about the preference for the glib rather than the insightful. I wondered if it was too cynical. Apparently not.