18 May 2010

closed systems - bad for us and bad for profits

As a free market technology enthusiast, the concept of closed systems is in simple terms, evil. I’m all for protecting intellectual property, but companies that try to force its customers to buy inferior products through its market dominance disgust me. If you sell widgets, don’t make me buy your screws. They don’t embrace uniform standards, and focus more on competition squishing rather than creating quality products. They stifle innovation, leave consumers with fewer alternatives, and create far less value for society as a whole as they are no better at making screws than I am. The good news, however, is that these strategies generally fail in the long term. Some instances require more patience than others.

Sony tried to do this in the early 90’s. They had the first mover advantage with digital cameras. The early adopters adopted. They proceeded to create a proprietary-based system where a Sony customer was forced to buy closed memory cards, batteries, and parts for their camera. I’m not sure about you, but Sony doesn’t come to mind when I think batteries. The Nikon’s and Canons of the world adopted more open standards (USB, SD, etc.) and crushed Sony. Trying to make a few extra bucks on something they had no competitive advantage in cost Sony a multi-billion dollar market opportunity (and their shareholders dearly).

Microsoft. The company everyone loves to hate. They tried bundling a much inferior IE web browser using their Windows platform. They were a bit more successful, primarily because of their near 100% PC market share. Talk about lack of innovation though. How about the 5 year project known as Vista? Microsoft is closed-source, restricts the number of 3rd party apps, and has no real incentive in giving the consumer what they wanted. It merely became a product one was forced to use when you bought a computer. And that’s the reputation they carry today.

But watch out. The desktop is dead. The laptop is aging rapidly. Sure, Microsoft 7 is supposed to be better (or a rip-off of Mac). As the devices change, so will the operating system. Microsoft failed in its attempt of cornering the mobile OS market, and is behind in the new generation of IP-based smart devices. Internet-based technologies struck straight through the heart of Microsoft. Google made search, just that. A simple, user friendly task. Linux and other open source platforms came back to life. Programmers were willing to share their talents to make the world a better place. Companies like Warner Brothers cringed (and almost died) when their world of $15 CDs came to a grinding halt. Although Microsoft has more money than god right now, their success is not assured. Their cash generation may have covered many bad bets in the past (can you say XBOX or Zune?), but the game, thanks to open technology, is changing.

There are hundreds of other examples. I can’t wait until 2014 until the Wright Amendment finally relieves Southwest Airlines from the illogical DFW Airport monopoly. Can you believe it’s the only major airport with no public transportation access to it? Although the $17/day parking looks juicy right now, it won’t survive in the long-term.

I love companies that create markets, products, and innovation that we as consumers embrace. Not because we are forced into it, rather its’ because the product is better than what’s currently available in the market. This not only benefits society as a whole, but it also forces companies to constantly adapt, and stay abreast of its customer needs. Sounds like a winning long-term business plan to me. Companies like Apple and AT&T have learned this and moved from restricted to more open distribution models. Perhaps this free “Office” online is the start of Microsoft’s changing ways, but somehow I doubt they get it. Steve Ballmer was the one that exclaimed the IPhone would never “make it” at one of the CES shows a few years ago.


  1. This is right on time, as I was surfing all the cygwin packages, installing and seeing how wonderfully they work, and its all written by volunteers!!! It is pretty amazing the idea behind open source. I feel a new vision of life, that maybe this world is not all oriented in the same direction, when I realize how many people are simple doing what they love and keeping it clean.
    But then I have to be a devil's advocate, if all these applications start becoming open source and free, circulation of money will slow down. With an increase in population, the only way to get to all our fellow humans is circulation of money. Granted most of these big-dawgs (Sony, etc) are not circulating it the right way, but Bill sure is. And I hope more do in the future. Am I asking for Eutopia? Well, aren't we almost there?

  2. Raki, I really like this topic. I've been running Linux since 2001 so my opinion on this is predictable. I agree with you, but I still enjoyed reading how this translates to business success and failure.

    Now for the predictable part of my response: what about when companies use laws to prevent the reverse engineering of their closed system (so we can't make an open competing product)?

    Priya, glad to see you got cygwin working :-).

  3. Open source is definitely an interesting topic when you consider the evolving marketplace of today. The question is, can you be too open source and be successful? At some point, revenue needs to sustain the operations of a business model which is the base of business viability. Open source drives innovation which is the source of future growth. I think a mixed source model, proprietary IP linked with an open source platform is the wave of the future.....

  4. It is a strange balance for sure. On the one hand, I love the "hippie-like" idea of free techology and innovation; but on the other hand realize that without a profit-incentive, it can only go so far. Let's face it, Google is not "free". You definitely know when people have gone too far one way or the other. Perhaps an ideal would be feel good, money making venture that strikes the right balance.