January 27th 2016

Platform lessons from Microsoft vs. Apple

Apple just introduced two new platforms — Apple Watch and Apple TV. Google keeps upgrading and altering its Android OS and introduced Android Wear. Microsoft reinvented its OS with Microsoft 10 to encompass all its devices. Amazon tries getting into platforms — its biggest success being the Kindle. It yet has to prove itself in the tablet arena and it will be interesting to see into what Alexa will develop. Blackberry is all but finished. And finally, car manufacturers are in a race with new entrants to create software for both drivers and driverless vehicles.

Everyone has an assumption on what platform will dominate or what is better for consumers, developers and other parties. It should be a good exercise to have look into the past to see how platform wars have resolved in the past and where we are now.

In the 90s the PC market had two main players- Apple and Microsoft (for simplicity Intel can fall into the Microsoft umbrella). Apple created the consumer PC market with the Macintosh and its closed hardware and OS model allowing minimal hardware customizability and more software restrictions than Microsoft. Microsoft produced an open PC infrastructure allowing independent manufacturers to produce hardware for its OS and a higher level of customizability. During that period, the PC market was mostly a corporate landscape. The market was mainly focused on commoditized products which were comparable on a cost-benefit analysis and whose appearance was irrelevant and the home buyer was interested in a PC that ran the same software they used for work. This demand was perfect for Microsoft’s open model which produced a generic commodity product. Microsoft’s domination taught us that closed platforms are able to create a new market, but only open platforms are able to commoditize a product and create cheaper versions. This inevitably expands the market which developers follow and the open platform ultimately wins. It became a universal truth that there can be only one platform that would succeed and second place didn’t exist.

Is history repeating itself? With Android playing the role of Windows and Apple playing the role of Apple? So it seemed when Google released Android — they were cheaper than the iPhone, it greatly expanded the smartphone market and Android’s increased market share slowly captured more and more developers. However, things have changed now. First of all, it should be noted that the monopoly that Microsoft enjoyed in the 90s is actually an anomaly when compared to any other market. Most markets — cars, clothes, food etc. — have multiple vendors that can be divided into premium and discount sectors. The reason that Microsoft enjoyed success in the 90s is simply because it had one main consumer which evaluated its purchases on a cost-benefit analysis.

Today things are very different for two reasons — We have the internet, an ‘unmonopolizable’ platform laid atop the existing PC. Any PC device could access the computer. And today the purchaser of computers/phones and consumer are often the same person. Buyers who are purchasing a computer or phone for their own use think very differently from buyers in IT departments.

Consumers are not bound by P/Ls and making decisions solely on a cost. Thus as soon as consumers started to make decisions, a premium market developed with premium prices. And premium consumers spent more money and supported the efforts of developers by paying more and fostering their community. Developers are crucial to the successful creation of platform, but the lessons of the 90s were wrong. Developers do not follow users or market share, they follow the money, therefore the platform which earns the developers the most money will attract more of them. Consumers of premium products spend a relatively higher dollar amount on related products such as apps and peripherals — so for the developer these consumers are worth more in dollar terms.

Apple owns the premium sector in the smartphone industry and its app store revenues are roughly on par with play store revenues even despite having close to 2.5x less active users. So what does this tell us? Well, what holds true for every other market also holds true for computing — closed can win, open can win or both can co-exist. The Microsoft example of the 90s was arguably a fluke.

What does this tell us about the current platform wars? Two truths still hold:

1. Developers follow the money and are necessary for a platform to thrive.

2. Premium and discount products can co-exist as the consumer base has expanded.

On top of which the landscape today is very different than it was when Android vs Apple was taking place.

· Apps have gone from novelties to creating whole platforms of their own — Uber.

· There are more than two companies competing for platform domination — Apple, Tesla, Google etc. for driverless cars.

· Killer apps/features sometimes are mainly responsible for a platform’s success — Blackberry with its secure mail/keyboard.

· Platform co-dependence and strategic alliance are increasingly important as IT enters other markets/indudtries — take GM and Lyft, or AppleTV and Content Providers.

Open vs closed will always be a point of contention — but its relevance today is much more obscure. As platforms enter more and more facets of our everyday lives and engulf established industries its clear that the path to domination is becoming increasingly complex involving numerous inter-playing factors. Microsoft’s success in the 90s will be impossible to replicate as we have entered this new age.