Banks

One or two students have expressed surprise that banks - such as Citibank - are even more profitable than oil companies.

The answer to this is: distribution.

If you can control distribution - be the man in the middle - you can maximise your profits. If you can control the distribution of the factors of production, you become the king of money!Tesco is a good example of this - being the distributor sitting between food producers and consumers.

In effect, banks act as the distributor for money. The central banks produce it and consumers/businesses consume it. They are helped in their task of making money by the way the credit multiplier works. In short, this means that any money deposited in a bank may be loaned out to people/businesses perhaps as much as 35 times - making profit from each loan.

Distribution is also the key to the changes we are seeing on the Internet. In some ways, we have lived through a golden age of free access (apart from a small monthly subscription) to all the world's knowledge. This was because the Internet was created partly by accident and partly by idealists. The millions of websites on the net and the millions represent almost a perfect market in knowledge.

This is rapidly changing.

Already it is the case that sponsored links appear at the top of any search. What is less well known is that you can pay meta-engines to ensure that in an open search your website appears near the top of the open search, pushing down the list those not willing to pay.

Very soon, it will be the case that you will be able to pay the meta-engines to ensure that your rivals do not appear on the list at all.

Soon after that, it may be the case that only a few professional knowledge providers will exist - drifting more towards an oligopolistic market. You can already see this beginning to happen with companies like about.com becoming more prominent in any search.

The big companies are also beginning to move into position. Microsoft was damaged by failing to recognise the rapid growth of the internet - Microsoft still essentially sells product eg. Windows, rather than controlling distribution. Google dominates distribution. But Microsoft is working hard to compete with Google in the next generation of internet development - this will see television/movies/news/financial services/retail products/gambling delivered through broadband everywhere to everyone at any time - linked to local product distribution centres - destroying existing delivery mechanisms like satellite television and seriously damaging the profitability of physical shopping centres.

The next 25 years will see a revolution in the way we consume - and he who controls distribution will be king.