84 ATaleofTwoMarkets
our Internet site every month. Even though we don’t make money,
that’s 20 million (or so) eyeballs, so we must be good, we must have
value, and you should invest with us.”
People do in droves, following a monkey see, monkey do men-
tality. For most—though not all—of those businesses, the flood of
funds is unjustifiable in a business analysis mind-set. (The next
growth industry is likely to be Internet bankruptcy law firms.)
Every frenzy is accompanied by rational-sounding new rules that
attempt to explain the irrationality. In the last century alone, a “New
Era” bull market culminated in the 1929 crash (fueled by the spread
of wonderful new technologies such as cars, electricity, vacuum
cleaners, washing machines, radio, and talking movies), a “Second
New Era” flamed out in 1962’s “New Panic,” and a “New Perfor-
mance Phenomenon” preceded the implosion of markets and mutual
funds in the late 1960s. The stoc kmar ket bubble in Japan in the
1980s was fueled by the widespread belief that Japan had created a
“new” economic model that defied the historical principles of eco-
nomics. Market share was king, and companies were rewarded if
they had it and rewarded more if they got it at the price of having
no or low profits, much as in 1990s–2000s U.S. markets.^16
This is not to say that market share is irrelevant. Market share
is a standard and useful indicator of the relative performance of
Coke compared to Pepsi, for example, and something both these
companies pursue aggressively in their competition in the beverage
marketplace. And it is significant that Cisco has 80% of the router
market and 30 to 40% in network switches and that DuPont domi-
nates global markets in nylon and Lycra. That kind of market scale
enables a company to lower the cost of sales and general and ad-
ministrative expenses, which translates into higher profits.
But Coke, Pepsi, Cisco, and DuPont make money in their mar-
kets. A larger share of a profitable market is certainly desirable and
a good indicator of strong business performance. The same can hard-
ly be said for a larger share of an unprofitable one. On the contrary,
the greater your share is, the more money you lose.
Aggressive accumulation of market share can be perfectly dis-
astrous for a business. Loo kat what happened to the airline industry
after deregulation. Intense competition for market share drove nearly
all the profits out of that business. The same thing occurs in the
submarkets where Coke and Pepsi compete, driving profits at bot-
tlers for those brands close to zero in some places.
Nor is this to deny that technological changes from the 1980s to