Fragmentation isn't really the main issue. Someone will come along and snatch a lot of market share when it's meant to happen. So far, no one site offers a local experience that meets anyone's expectation of how broad a local community's interests or behaviors should be.

Facebook tends to be a closed circle. Patch has been plagued by both abusive, anonymous commenters and astroturf. Yelp seems focused on reviews and not on giving people their own voice and creativity. Groupon shows hardly any community interaction.

We still don't see many well-known sites that come close to offering the authentic experience of living in a mostly caring and helpful town with myriad subject matter experts. Some of these sites are more like the lunatics running the asylum. It's the same problem the editorial page has had for ages-- it acts like flypaper! The business model that can afford to carefully curate so much hyperlocal content really does not exist yet, so we find ourselves settling for something less until then.

Any time someone advocates barriers/moats/etc in a market, I immediate ask myself, does the redistribution of profits this causes outweigh the efficiencies gained?

The small town vendor story is instructive:

Walmart destroys downtowns, but it also saves the (oftentimes poor) locals hundreds or thousands of dollars a year. In some communities, this has been a huge boon to standards of living, even though it closed the local hardware shop. In other towns, it has turned them into a wasteland of low wage jobs in strip-malls and broken a big chunk of the local economy.

The same question can be put to the web markets: Going with one or two big providers will almost certainly add to efficiency gains, and thus lower prices. Is trading away the competition worth it?

Edit: Sometimes equilibria is two or three providers, or one dominant and a few smaller (think search). In my mind the best case market is probably US coffee, where you have one dominating chain (Starbucks) that opens up the market for lots of smaller one-offs.

I think that the Walmart issue creates benefit more through drawing money out of cities and into developing countries, and detriment through carrying money out of small towns. The decreased price of goods is often counteracted by lower incomes to local stores, and ends up doing more harm than good. This is basically a type of arbitrage and is often very helpful to the world economy, but I'm not sure the analogy carries over on the internet. Large companies do not help new developing communities join the internet marketplace like Walmart does for developing countries. So while I often do opt for a natural self regulating approach, large dominant companies would not be like Walmart in the future of internet culture. And the problem may correct itself in time, as big companies may not find their natural niche like Walmart did, and just become latent, new company gobblers. If this were the case, we may find that the internet doesn't have any use for dominant companies, and big companies will be consistently replaced one after another for years to come.

I think this writer has an excellent point about the importance of locality on the internet, and I think that the idea of online cultures and communities needs to be explored more as method of creating organization within the internet. Really, aside from habit, mutual interest is the only bond holding most internet communities together, and I think that is a concept which can be explored and built upon.