Open Platforms and Market Share

I’ve updated one of my more popular charts, and upon further reflecting and sharing via video conference at a couple of Ivy League business schools, I think there are some deeper observations to be made. Here is the chart.

This chart, in its most cursory interpretation, shows how Microsoft fell as the dominant market share provider of personal operating systems. Microsoft missed the mobile wave, and Google’s Android filled the void. I’d like to unpack this chart a little further and make what I believe to be some important business and industry lessons.

Market Share Does Not Equal Influence
This chart is helpful for a variety of reasons. Firstly it shows us two computing waves. It shows us the desktop and notebook computing wave and the smartphone wave. What’s key to note here, is these are the only two technology waves we can observe. So we need to try to learn some lessons from both but also be cautious before claiming that history always repeats itself. It may in this case, and it also may not. There are actually a few differences between the desktop and notebook wave and the smartphone wave I’ll get into. However, the lesson that I think is clear is market share does not equal influence.

When Microsoft acquired just over 98% share at their peak, Apple was still remarkably influential in the tech industry even with their measly >3%. Fast forward to today, and while Android captures over 70% of annual sales of personal computers, both Microsoft and Apple have more influence in the market than Google. Windows and iOS both have shares in the teens, yet both of them have much more vibrant economies built around them. Microsoft Windows has an extensive business ecosystem built up around it with many third-party ecosystems thriving because of it. The same is true of iOS. Apple’s mobile software platform is the most important economic mobile platform regarding sheer dollars and ecosystem value.

This point, I believe, is a repeating truth. Meaning, no matter what happens in the next wave or who can claim they are the market share king, it does not mean they are the most influential.

Only Open Platforms Can Garner Market Share Scale
I am not saying that closed platforms cannot be market share leaders of a category. iOS is the current market share leader in both tablets and wearables, and I don’t believe that will change any time soon. However, both of those categories are not that large in volume and may never become more than a few hundred million units a year in volume. The bigger the total addressable market, the more it favors open systems. Smartphones are the best example of this and with a TAM of nearly every adult on earth, or roughly 5 billion humans and ~1.5 billion a year in annual sales, a closed system can never become dominant in such a large market.

This statement brings up something important from a business perspective, and my chart helps us visualize the takeaway. Microsoft was an open system, meaning a platform anyone could put on their hardware and rose to dominance because of an army of hardware partners. The same happened with Google and Android. Android is an open platform that rose to market share dominance in the smartphone market thanks to an army of hardware partners. Only an open system can displace the previous open system who had the dominant position.

But what makes this interesting, is the very nature of the reason an open platform can scale and displace the incumbent open platform is that it is open. Meaning it is flexible, scalable, and customizable and any partner can do with it as they please. This is the reason it can achieve scale, but it is also the reason all is not lost for the incumbent player.

Had Microsoft embraced Android, instead of fight it, earlier on as they were losing the mobile battle, they would have leveraged it for their benefit much earlier on in the smartphone cycle. Only recently, has Microsoft decided to embrace Android and make it the best companion platform to Windows. A wise move indeed, but one that could have helped them a great deal should they have done it earlier.

The lesson for the incumbent open-platform is not to be afraid of displacement in the next wave should it happen. The very reason displacement is possible, thanks to openness, is also the enabler to usurp the platform from your competition to your strategic advantages.

The Big Waves Create More Opportunity
The last observation I want to make is related to the size of the market in a technological wave. When Microsoft had their 98% share, PCs were only shipping around 250-300 million units a year. The mobile wave was bigger, with a 1.5 billion a year shipment base, and it is notable the open platform (Google Android) did not get the same level of dominance in market share Microsoft did. This has everything to do with the size of the market.

So, I propose, if the next technological wave is bigger, the open-platform that absorbs the most market share will acquire less overall share than the wave before. In the second computing wave, Android acquired less total market share than Microsoft did in the previous wave. Moreover, in the next wave, I’d predict, whoever emerges as the open standard they will acquire less total share than Google Android did in the mobile wave. It’s a thesis, but I think it is plausible.

I’m excited to see, over the next 10-20 years how this plays out and if we see history repeat, or if something entirely new emerges. However, I keep coming back to the most critical point is that market share does not equal influence or even great value. What matters is building a platform that creates a healthy economic ecosystem for all. Do that, and everyone wins.