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Preface: this question is not about "having a go" at StackOverflow and is not a defence of expert-sex-change.com, which I have never used. It is purely a question about whether SO, if it is running at a loss (an assumption of mine, which may be wrong), will eventually fall foul of competiion law. I think it is an interesting question, which is why I asked it.

It seems to me that Joel et al. are using their own money to attempt to blast "the site with the hyphen" out of the water by undercutting them on price (quite severely!). If this were Rupert Murdoch in the newspaper industry, we would call the practice anti-competitive and a regulator might decide that it was illegal.

Could a competition regulator find stackoverflow guilty of illegal business practices, at least until SO breaks even? Is what SO is doing fair on "the site with the hyphen"?

EDIT: to recap, anti-competition laws about predatory pricing are about running a business at a loss (i.e. unsustainably) in order to put a competitor out of business. You can give away stuff for free (like free newspapers) but only if this is sustainable (i.e. you are generating enough advertising revenue to match your costs). Typically you will be given some leeway to run at a loss for a short period of time.

EDIT2: I am assuming that, for the moment, SO is running at a loss. Certainly this would have been the case when it started, it may not be the case now of course. The last talk by Joel I listened to, I believe he referred to it not yet breaking even (please correct me if I'm wrong).

EDIT3: I belive that predatory pricing can be levelled at a company which produces a product for free but intends to make money from that product via some other channel - such as advertising. A monopoly can charge more for advertising and thus attempt to gain a monopoly via predatory pricing could certainly be construed as anti-competitive.

Note: I am not a member of "the site with a hyphen" and clearly a supporter of SO!

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Name your enemy: Experts-Exchange. Just because Joel is a lousy coward, does not mean you have to be one. –  Ladybug Killer Sep 8 '09 at 8:19
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You're saying they're anti-competitive because SO doesn't suck and it's free and it's not cloaking results if you're not Googlebot? –  random Sep 8 '09 at 8:21
    
It's the name of the game. They are free to change their business model and their usefulness, and they are back in the ballpark. –  malach Sep 8 '09 at 8:23
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What exactly is your definition of anti-competitive? I suspect it is flawed. –  Stu Thompson Sep 8 '09 at 8:25
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I've edited my question to give a description of what is anti-competitive behaviour. Anti-competition laws exist and can be upheld (as in the link I posted). The question is entirely valid. –  oxbow_lakes Sep 8 '09 at 8:27
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[citation needed] –  Jarrod Dixon Sep 8 '09 at 8:28
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@*Jarrod* - what do you mean "citation needed"? I've offered a link to what I think is a reasonable analog of how SO works (i.e. running at a loss to target your competition). –  oxbow_lakes Sep 8 '09 at 8:30
    
What does Penny-Arcade.com have to do with any of this? –  random Sep 8 '09 at 8:33
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Where are you getting that they're running at a loss? –  random Sep 8 '09 at 8:34
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You seem to be assuming that when and if Experts-Exchange goes out of biz, then SO is going to start charging. That is not the case. The data is CC-wiki'd, ffs! Read blog.stackoverflow.com and listen to the postcasts to get an idea of what J&J's biz model really is. –  Stu Thompson Sep 8 '09 at 8:34
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My comment was concerning the information you're using to say Stack Overflow is running at a loss to put other sites out of business. –  Jarrod Dixon Sep 8 '09 at 8:35
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@Stu - I know Joel has said that he will never charge for SO. What if SO cannot be monetized? They will not be allowed (and will not want to) run at a loss. What happens then? –  oxbow_lakes Sep 8 '09 at 8:36
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I'm at a complete loss as to why this question has been downvoted... It's a question about stack overflow, well-written and contains links to various relevant articles. Oh, and it's labelled discussion: why is this deserving of a downvote? –  oxbow_lakes Sep 8 '09 at 8:43
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Downvotes on meta are any sort of reason, don't like|agree|think so, it's wild, it's varied, it's nothing personal. –  random Sep 8 '09 at 8:49
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You're in the land of Meta now. Leave your boots at the door and pull out that quiver of votes. It's gunna be a duck shoot. –  random Sep 8 '09 at 8:54

7 Answers 7

up vote 11 down vote accepted

The point about predatory pricing is interesting. From the Wikipedia article on US Antitrust Law:

"Large companies with huge cash reserves and large lines of credit can stifle competition by engaging in predatory pricing; that is, by selling their products and services at a loss for a time, in order to force their smaller competitors out of business."

This is under the section on Monopolization and reading the rest of the article suggests to me that any predatory pricing would have to be on such a scale as to completely force all competitors out of the market and make SO the only place people could use to ask programming questions, which realistically will never happen due to the vast number of other resources (blogs, free forums, etc.).

Also, I suspect it could be argued that the people paying to use SO (the advertisers) have free choice to advertise on many other technology web sites, so there's no case of Monopolization there.

Incidentally, I think this is a really interesting discussion question and it's a shame people feel the need to downvote the OP and / flame them in the Comments section (I don't downvote on meta unless the question is unrelated to SO).

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Downvotes are a sign of disagreement/don't like the idea. It's not personal at all. It's not a right/wrong thing either. –  LeakyCode Sep 8 '09 at 11:57
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@Mehrdad: It's personal when I downvote you. –  Eric Sep 8 '09 at 12:23
    
@Fearless: So are people disagreeing or saying they don't like the idea when they downvote this? Because, he's not actually stating an opinion...just asking a question...I don't see that there's any "idea" to disagree with. –  beska May 10 '10 at 18:46

I'm very confused as to why you're assuming StackOverflow is operating at a loss. All indications from Jeff and Joel are that it's actually running at a profit (albeit modest).

Regardless, StackOverflow is actually very competitive. They jumped into a red ocean with the Q&A sites, because they thought they could do it better (surprise, they can). Predatory pricing is based on a temporary price reduction to kill a competitor, and then raising that price later. StackOverflow is free forever (like Evony, without the boobs in advertising). StackOverflow is anti-competitive the same way Canonical, Ltd is anti-competitive: It's not.

Monopolization laws are in place for large companies who create artificially large barriers to entry, thereby reserving the entire market for themselves. The barrier to entry to creating a programming Q&A site is still exactly the same as when SO started. This a point you seem to have missed. Monopolization is when the barriers to entry are so high, that no reasonable company could compete in your market. Microsoft got into trouble with its aggressive OEM strategy on this.

In the US, anti-trust laws are very much market-segment focused: You can own all vertical sectors (a la Apple), so long as you aren't hostile toward competition, and the barriers to entry haven't changed. In the EU, this is reversed. You can own 100% of a market and create large barriers to entry, but you have to give people vertical choice. This is why Microsoft has to sell 42 versions of Windows in Europe. StackOverflow does not fit into either of those two camps.

Essentially, your question is a misunderstanding and/or liberal (not in the political sense) application of anti-trust laws. It's not anti-competitive to be better than your competition: It's downright the American Way(tm).

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@Eric - as I mentioned is an earlier comment, SO is free to me, not to advertisers. It would be anti-competitive for SO to put other Q&A sites out of business and then rack up their rates to advertisers using their new monopoly. I'm not saying that they'd do this - but notion that "free to users" means that competition law is not relevant is just wrong –  oxbow_lakes Sep 8 '09 at 10:51
    
Can you provide a link to their claims of profitability? This whole question came about because I believe I've just watched a presentation where Joel talks about how he's not decided how to monetize the site yet –  oxbow_lakes Sep 8 '09 at 10:52
    
But +1 for your answer anyway! –  oxbow_lakes Sep 8 '09 at 10:54
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@oxbow: You're going to argue on the basis of advertising on the Internet? Google is the closest thing to a monopoly--and it is a far, far cry from being one. StackOverflow doesn't even touch it. Originally, SO used Google for advertisements, but it wasn't generating enough revenue, so they've gone and started selling their own. This isn't the behavior of an anit-competitive company. –  Eric Sep 8 '09 at 12:22

I don't think you can apply anti-trust laws just because someone undercuts you with a better product.

If SO were to do some kind of deal with Google so that only SO results would be returned and never expertsexchange ones then that would be anti-trust.

Predatory pricing is a temporary measure to put your smaller competitor out of business. I don't think that can be levelled at SO because their entire model is free.

The entire point of SO's social enterprise is that the free advice (well, advice for kudos) is actually worth more than paid advice. And they're right.

SO isn't running at a loss to kill expertsexchange and they never were. They started at a loss because they have a basic principal that paying for advice changes its nature.

Oh, and Rupert Murdoch is currently bleating about the BBC being anti-competitive because their news is both free and better than 99% of the content on his (and actually news, entirely unlike Fox). He's wrong too.

Similarly booksellers in the UK have been complaining about Oxfam - a charity that takes in old books and resells them cheaply.

If you produce a better product for less money consistently (not just for a brief period to hurt your competition) then all's fair in love and free markets, regardless of how you do it.

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"I don't think you can apply anti-trust laws just because someone undercuts you with a better product" - is correct of course. I'm no lawyer but I guess that this is a complicated legal issue as to exactly when pricing can be considered predatory. If SO were pure altruism (like Wikipedia), then it would have been created as a noit-for-profit organization which, to my knowledge, it hasn't. –  oxbow_lakes Sep 8 '09 at 10:29

I cannot comment on our business strategy, as that is solely Jeff's and Joel's realm. But I can tell you how I approach my work on the sites.

I want to make Stack Overflow:

  • easy-to-use
  • fast

That's it - that's all I feel a site needs to "win." There's no malice or ill-will in my work towards our competition.

And nothing from my leaders has lead me to believe anything different - we want to win by being excellent; we want to help our fellow programmers.

Finally... PARTY ON, DUDES!

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Thanks Jarrod. I certainly wasn't intending to imply that Joel of Jeff were acting out of any malice. However, I would expect the law to be concerned with practices and outcome rather than intent –  oxbow_lakes Sep 8 '09 at 10:26
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@oxbow: You'd be surprised how much intent has bearing on the law. Intent is the difference between manslaughter and murder (to give an extreme example). –  Eric Sep 8 '09 at 12:26

As guilty as Gimp or Paint.Net are guilty kicking Adobe out of business.

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I don't think these are valid examples as neither product generates any revenue, whereas SO generates money through advertising (although as oxbow_lakes points out SO is probably currently running at a loss). –  Adamski Sep 8 '09 at 8:45
    
@Adamski - exactly! SO is not an open-source offering and it has not been setup as a not-for-profit company to my knowledge. Ultimately their goal is to make money. This is completely different from the GIMP. –  oxbow_lakes Sep 8 '09 at 8:50
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Believe or not. They make money and as k for it: getpaint.net/donate.html gimp.org/donating –  Ladybug Killer Sep 8 '09 at 8:54
    
@John - Gnome is a not-for-profit organization: gnome.org/press/releases/redhat.html. And by the way, I don't appreciate being called a lousy-coward. Everyone on here knows what "the hyphenated site" means. –  oxbow_lakes Sep 8 '09 at 9:00
    
@John: The subtle difference here is that Gimp and Paint ask for donations, they don't enforce payment. –  Adamski Sep 8 '09 at 9:04
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@Adamski: So what? SO is not enforcing payment either. I don't pay. The guys who advertise do. Asking for donation is a form of making money. Let's assume they are able to kick Adobe out of business. Who prevents them for asking for more/higher donations to fill the gap (more feature/maintenance requests)? –  Ladybug Killer Sep 8 '09 at 9:11
    
@John - the fact that they have been setup as non-for-profit organizations and hence cannot make a profit. GIMP and SO are fundamentally different beasts –  oxbow_lakes Sep 8 '09 at 9:17
    
@oxbow_lakes: Ok, Gimp is non-profit. First: that does not mean they cannot kick out Adobe. Second: There are enough non non-profit companies out there competing the same way Gimp/Paint.Net do with Adobe. So my point is still valid. –  Ladybug Killer Sep 8 '09 at 9:26
    
@John: My point was that SO is enforcing payment to people who want to advertise, whereas Gimp / Paint.Net ask for donations which are entirely optional ... which is why I don't view these examples as valid comparisons. –  Adamski Sep 8 '09 at 10:34
    
No, @Jon, you're point is not valid. It's reasonable to give something away for free if this is a sustainable business model (e.g. supported by advertising). My original question was posted from the perspective of SO not paying its way which would be anti-competitive if continued ad infinitum. I'm not a lawyer so don't profess to be an expert but clearly your argument is nonsense because (as in my original link), companies are charged with predatory pricing. Nnothing you've said has persuaded me that this could not be levelled at SO because your examples are quite different cases –  oxbow_lakes Sep 8 '09 at 10:36
    
@John - predatory pricing is not just about what the users of the SO site pay: it is also about what SO charge to advertisers. they can predatory-price "hyphen" out of business and then rack up their ad rates. This would be anti-competitive and unlawful. –  oxbow_lakes Sep 8 '09 at 10:47

This is like saying that publishing a free newspaper (*) or Wikipedia should be illegal. It doesn't make sense to me.

(*) (with the difference that the free newspapers you get at tube stations usually suck, at least in Barcelona, so that it makes sense to get a paid one).

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Haha yes! Please see my comment to Robert above. Anti-competition laws are about preventing products being sold at a loss to put competitors out of business. –  oxbow_lakes Sep 8 '09 at 8:22
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@oxbow_lakes: Most companies start off at a loss, and hope to break even in time. How are you distinguishing between "sold at a loss" and "sold at a loss to put competitors out of business"? Your question would have some merit if you showed how SO differs from any other start-up, or products like Xbox or PS3 which are also "sold at a loss". –  nagul Sep 8 '09 at 9:26
    
@nagul - you're correct of course. Perhaps I should have titled my question differently but I do mention your point in the question in my description of predatory pricing. –  oxbow_lakes Sep 8 '09 at 10:45
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The Galway Advertiser is actually fairly good quality for a free newspaper. Certainly better than either the Dublin or the London Metro. –  TRiG is Timothy Richard Green Nov 18 '12 at 5:22

I don't see how SO could be 'anti-competitive' ( then I again I trust the free market so anti-competitive is in the ballpark of hired guns to me).

SO has multiple stakeholders:

  • end users
  • advertisers
  • implementors ( StackExchange )

It so happens that in this particular business model the users pay nothing, but the advertisers and implementors do.

The pricing strategy and business model overall are the prerogative of a business, they're not anti-competitive if they cut into others' market share. On the contrary, they are very competitive.


Update: I answered the regarding the spirit of competition, not the letter as engraved in the US laws. That question can only be fond in the SO financial statements, and my guess is that I'm not going to see any of those ( until/if they go public ).

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No - it's only anti-competitive if the site is not self-supporting (via the advertising income). Normally in the newspaper industry, an evil magnate might sell at a loss until his/her competition had gone out of business. There are clear rules against this. –  oxbow_lakes Sep 8 '09 at 8:21
    
If that's exactly what you mean, I'll have to see the papers behind SO. Although that might be just a tad troublesome to arrange. –  Robert Munteanu Sep 8 '09 at 8:24
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@oxbow_lakes: I think you're missing the point entirely. Predatory pricing is applicable when "The predatory merchant hypothetically could then raise prices above what the market would otherwise bear." This was true in the newspaper industry business, which has a high cost of entry and relatively few competitors. You cannot apply this to an internet service; services are a-plenty and people are free to jump at the click of a button. Your theory condemns all the startups that offer a free service. –  nagul Sep 8 '09 at 9:41
    
You trust the free market to do what, exactly? –  TRiG is Timothy Richard Green Nov 18 '12 at 5:22

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