The world’s cutest monopoly

In the age of antitrust, why has Koala Kare, Big Baby Change Station, flown under the radar? 

Jeff Hilger had $15k, an idea, and a problem. 

Hilger, a medical device salesman, ran a company in Minnesota called JBJ Industries and, in 1986, had cooked up an idea with a few of his friends. 

There wasn’t anywhere good to change a diaper. What if they put change stations in public washrooms? They created a fold-out station that could be mounted to a wall, and patented the invention. 

The problem was, Hilger needed to get the dads — who weren’t changing diapers from their perches in the boardroom — on his side. 

Once he did, the money started rolling in. So did the market share: Koala Kare’s share of the US market is now an estimated 85%

the_Onion_questionIn 2014, the Onion posed a critical question. Can they?! (The Onion)

But no monopoly is created equal. Some, like Koala Kare, grow organically, riding a cultural tide to decades of success. Others, like Google and Apple, face lawsuits from the FTC for monopolistic practices.

So why are some monopolies able to flourish while others are scrutinized?

A rocky road to a monopoly

When Hilger began to market the tables in the late ’80s, he handed out brochures of a loving family, a baby cradled in a mother’s arms. It did nothing to appeal to mostly male business owners.

“We had to make them feel guilty,” Hilger, now a racehorse breeder in Minnesota, told Fortune in 2014.

He created a new brochure, one with a woman on her hands and knees, surrounded by matted balls of toilet paper, changing her baby’s diaper on the floor. A collective guilt trip ensued.

McDonald’s called, then Target, then Burger King. The tables began to sell themselves. By 1993, they’d sold 30k and were selling another ~1k a month. That same year, they went public, trading on the Nasdaq. By 1997, Koala was in 200k washrooms across the US.

“We got the babies off the floor,” Hilger said.

The brand’s high-profile customer partnerships even spawned merch. (Etsy)

But after Hilger retired from Koala in 1996, company leadership made a series of ill-advised acquisitions, trying to get into the playground business and selling plastic structures to amusement parks, playgrounds, and airports.

“We’re trying to get out of the bathroom,” company president Mark Betker told Forbes in 1998.

A Koala Bear Kare ad radiating convenience — and how conveniently you can stay and shop more — from the 1990s. (Koala)

It didn’t go well. In 2003, the company was delisted from the Nasdaq. The next year, as Koala Corp. was sinking in debt, the manufacturer of the original hand soap dispenser, Bobrick Washroom Equipment, stepped in. The company purchased Koala’s change-station division for $15.6m.

Its trajectory went upward again, especially as gender equity demands increased. In 2003, Pennsylvania introduced the potty parity bill, legislation that mandated change tables in men’s bathrooms and effectively doubled Koala Kare’s business in the state.

That tide would continue to rise as child care costs and divorce rates increased, making kids sidekicks to their parents’ lives outside the house. Even Ashton Kutcher weighed in, posting on Facebook in 2015, “There are NEVER diaper changing stations in men’s public restrooms.”

In 2016, Obama legislated changing stations in government buildings, giving companies like Koala Kare a bump. (Photo by Cheriss May/NurPhoto via Getty Images)

We’re not saying that’s why President Barack Obama signed the Babies Act in late 2016 to mandate changing stations in all men’s and women’s bathrooms in federally owned buildings, but he did. (We’re not not saying that.) 

The Koala joined the ranks of omnipresent brands that have surpassed the generic names for what they make: think Kleenex, Chapstick, Play-Doh, and so on. It makes sense, given that ~8 in every 10 changing stations bought in the US is a Koala. 

In other words, through sheer dominance of its industry, a company known for cleaning babies had become what many economic activists would consider a stain on American competition and consumer choice: a monopoly.

Is there such thing as a harmless monopoly?

Antitrust laws were first created in 1890, when Congress passed a statute designed to preserve “free and unfettered competition as the rule of trade.” 

A question on Jeopardy about you? Achievement unlocked. (Koala)

“Technically, a monopoly power is the power to control output or price,” says Jennifer Milici, partner at WilmerHale and former FTC lead litigator. 

And because it’s difficult to prove that with evidence in court, lawyers bringing monopoly cases often demonstrate monopoly power using high market share and high barriers to entry in the market instead. Case law puts market share that raises alarm at ~65%-70%, but the FTC puts it at 50%.

Koala-Kare-Market-ShareOlivia Heller

But when it comes to companies that have flourished by virtue of having a superior or innovative product, like Koala Kare, it’s critical to remember that monopolies themselves aren’t illegal, Milici says.

“If you have a monopoly just because you’re the only one who happens to make something and no one else wants to make it, there's nothing wrong with that,” Milici says.

“US antitrust law doesn’t prohibit monopolies. It prohibits conduct by monopolists.”

For example, in one of the most famous antitrust cases, the Department of Justice sued Microsoft in May 1998, alleging it used its influence in the PC operating system market to force Internet Explorer as a default browser. At the time, fewer than half of American PCs used Internet Explorer, although it was rapidly gaining on Netscape in market share.

Meanwhile, companies like Crayola (83%) or Gatorade (63%) have faced little scrutiny.

Koala Kare station installed in a new restroomThe new-and-improved Koala Kare tables, with rounded edges and kinder logo koalas. (Smith Collection/Gado/Getty Images)

In recent years, the Biden administration has ushered in what the Harvard Business Review dubbed “a new era of antitrust.”

  • The Federal Trade Commission and Department of Justice have built cases against Google’s advertising dominance, the Apple App Store, Meta’s acquisition of WhatsApp and Instagram, and Amazon’s penalizing of third-party sellers.
  • They’ve all been accused of abusing their power to increase their dominance, rather than just owning a dominant position in the market.

Put simply, it isn’t how much power you have — it’s how you got it that the FTC is concerned about.

So, should we accept monopolies, then?

Just because companies like Crayola and Koala Kare have cuddly public perceptions — and have saved parents countless hours and headaches — doesn’t mean they’re not part of an economic problem. In general, monopolies mean less competition, higher prices, and fewer options for consumers.

The change-station industry isn’t without competition: Rubbermaid makes them, as does ASI. But its competitors don’t specialize in the product the same way Koala does.

According to Matt Stoller, research director of the American Economic Liberties Project and author of the anti-monopoly newsletter Big, monopolies are bad for the economy, and because of inaction from the federal government they’ve faced few pressures.

“By not enforcing antitrust law for 45 years we allowed all monopolies,” he said. 

Stoller is watching the progress of the Big Tech antitrust suits very, very closely. Lawsuits like those shape the legal landscape for all companies, not just the target companies.

As Stoller points out, what’s good (or bad) for one monopoly is good (or bad) for all.

“If Google loses its antitrust case, every single corporation with market power is going to have their general counsel examine their contracts to see if they are analogous to the ones Google was held liable for,” he says.

“That’s also true in reverse. If Google wins, then corporations will know they don’t have to alter their behavior.”

Common places you can kind Koala Kare stationsOlivia Heller

How anything will affect the champion of the change station is unclear. Brendan Cherry, Koala Corp.’s longtime head executive, won’t disclose sales numbers or confirm the company’s market share figures, and didn’t respond to The Hustle’s interview request. But one thing is certain: Koala’s opportunities keep on growing. 

In the US alone, commercial construction has largely recovered from the pandemic lull, and the country is now home to 5.9m commercial buildings, up 6% from 2012. And the more commercial buildings go up, the more likely they’ll need Koalas to keep parents happy. 

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Topics: Economics

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