Platforms — Past, Present and FutureReading Time: 11 minutes
Last week, Benedict Evens re-linked to an article written in May of 2013, entitled “Apple, Open And Learning From History“. (All quotes, below, are taken from this article unless otherwise attributed.)
It’s still a good read and it got me thinking about platforms — past, present and future.
Let’s start by taking a leisurely stroll down memory lane.
In the 1990s, the PC market was mostly a corporate market (roughly 75% of volume). Corporate buyers wanted a commodity. They were buying 500 or 5000 boxes, they wanted them all the same and they wanted to be able to order 500 or 5000 more roughly the same next year. They wanted to compare 4 vendors on price with the same spec sheet. They didn’t care what they looked like (and they were going under a desk anyway) and they didn’t care how easy it was for non-technical people to set them up because the users would never touch the configuration. Nor did they care much about the user interface, because most of the users were only going to be running 1 or 2 apps anyway.
Meanwhile with no internet, home buyers were mainly interested in a PC that ran the same software they used at work (and all of the games were for PC). ~ Benedict Evans
As an aside, many have suggested that it was the internet, far more than Steve Jobs, that revived the fortunes of the Macintosh, and I think there’s a lot to be said for that proposition. The internet grew to become an independent, unmonopolizable ((Not an actual word.)) platform laid atop the then existing personal computer platforms. The Macintosh — and later iOS and Android — could all access the internet just as much, and just as well, as Windows could.
(Buyers) may have known Macs were supposed to be easier, but Apple had no shops of its own and what TV advertising it could afford didn’t show off the user interface (it’s hard to demo an desktop computer’s user interface on TV).
And, of course, Apple’s computers were ultimately beige boxes and not really that much prettier than PCs anyway. And they were significantly more expensive. ~ Benedict Evans
Strength Against Weakness
Hence, in this market all of Microsoft’s advantages were in play, and none of Apple’s. Apple, in Steve Blank’s phrase, did not have product/market fit.
The Open model deployed by Microsoft and Intel produced a generic commodity product that was exactly what the market wanted: Apple’s model did not. Fundamentally, Apple’s selling points were irrelevant, invisible or both. ~ Benedict Evans
This is a great insight by Benedict Evans and I have heard and read a similar thesis promoted by Ben Thompson too. The essence of strategy is to use your strengths against your opponent’s weaknesses, while simultaneously nullifying your opponent’s strengths.
So in war, the way is to avoid what is strong and to strike at what is weak. ~ Sun Tzu, The Art of War
The corporate marketplace was a field of battle that played to Microsoft’s strengths and negated Apple’s strengths.
(C)ompete on a battle field where they have no chance of winning. ~ ~ Sun Tzu, The Art of War
The “lessons” we supposedly learned from the 1990s were that:
a) Closed platforms may create markets (see Apple Macintosh); but
b) Open platforms commoditize a market, creating cheaper and ever cheaper versions of the product, which in turn
c) Greatly expands the market that the closed product created; and since
d) Developers follow the platform with the most market share; we can draw two inevitable conclusions:
1) Open platforms always win; and
2) There can be only one platform winner.
These are over-generalizations, to be sure, but it is the simplified —not the nuanced — version of the past that filters down through time to becomes the incontrovertible and unassailable dogma of tomorrow.
Platforms, then, were considered to be analogous to poker hand. A second-best hand was like none at all — it cost you dough and won you nothing.
These two general conclusions — that open always wins and that there can be only one — were pretty much considered to be universal truisms in the 1990s and 2000s. To deny either — especially in the face of the the overwhelming evidence provided by the success of Microsoft Windows — made you, at best, a fool, at worst, a heretic.
That which has been believed by everyone, always and everywhere, has every chance of being false. ~ Paul Valery
The fact that an opinion has been widely held is no evidence whatever that it is not utterly absurd. ~ Utterly Russell
We should have had some qualms about these seemingly obvious “universal truths.”
…I’ll grant you it’s obvious. Trouble is, just because things are obvious doesn’t mean they’re true. ~ Terry Pratchett, Wyrd Sisters
Does “open” always win in every, or even most, markets ? Does everything ultimately become a commodity?
No, and no.
There are thousands, and perhaps millions, of markets that have multiple vendors and that can be divided into both premium and discount sectors. And market monopolies — like the one Microsoft Windows enjoyed for almost two decades — are not only not the norm, but they are actually fairly rare.
Examples abound. Do we all purchase and drive the cheapest car on the market? Do we all purchase and wear the cheapest clothes? Do we all buy the cheapest food and drink the cheapest beverages?
Of course not.
So, if monopolies, such as Windows, are unnatural and the co-existence of premium and discount products are the norm, then why are computer platforms so very, very different?
Well, they’re not.
The most useful piece of learning for the uses of life is to unlearn what is untrue. ~ Antisthenes
Today, of course, [May of 2013] Android, combined with chip makers such as Qualcomm and MediaTek, is producing a quite similar flood of generic commodity smartphones.
Hence, there’s a pretty common narrative that ‘we’ve seen this before’ – that the same open approach, producing the same flood of generic commodity product, will crush Apple in the same way. ~ Benedict Evans
Here’s how that narrative played out in the press.
Low priced Android phones are expanding the mobile markets.
Android is the only operating system, modern smart-phone operating system, that exists on devices that cost $200 or less. That is what is enabling the next billion of users of the Internet on mobile in the world. ~ John Lagerling, Director of Android Global Partnerships, Google, 8 August 2011
Android’s cheaper phones are taking market share from the iPhone.
Note that the average Android price is heading toward $200 and the average iPhone price is heading toward $600. Apple is asking the question, do you want to pay three times as much for our phones? Thus far, 80% of the market has answered ‘no.’” ~ Jim Edwards, Business Insider, 31 May 2014
Apple needs to sell lower priced phones in order to increase their market share.
I think they should invest more of it in the margin, in the business. Get lower-priced products out there. Stop going after just the premium piece. Get into the real growth engine of the smartphone market, which right now is Android…. ~ Henry Blodget, CNBC, 3 January 2013
Android’s increased market share will capture all the developers.
Slowly but surely, Android’s dominant market share is causing developers to prioritize it. ~ Henry Blodget (@hblodget) 11/7/14
History repeats, with Android playing the role of Microsoft and Apple playing the role of…well, Apple.
If Apple continues to pursue its current pricing and maximize-short-term profit strategy, it may continue to increase its profits for the next couple of years. … But Apple will also continue to lose platform and ecosystem share in most of the world. … (I)f the gadget platform market behaves the way other platform markets have (think Windows), Apple and its fans may come to regret this short-term thinking in the end. ~ Henry Blodget, Business Insider, 15 November 2013
Apple, indeed, has a history of making fine products that are very expensive and proprietary — only to give the market away to the competition. The problem Apple is facing currently is much like the same problem they encountered during the Operating System wars of the 1980′s – 1990′s, (i.e., they produced a far superior product that was light years ahead of the competition, yet they blundered by overcharging). This allowed a horde of inferior “affordable” and “good enough” products such as Microsoft’s Windows along with the legions of IBM-compatible clone makers like Hewlett-Packard and Dell to overtake Apple. Now we see Apple repeating its past mistakes…but this time with Android. ~ Austin Craig, The Motley Fool, 23 January 2013
The great tragedy…the slaying of a beautiful hypothesis by an ugly fact. ~ T.H. Huxley
Open Android was the new Windows and the closed iPhone was destined to become just as niche and just as marginalized as the old Macintosh had been. That was the theory. Reality, however, begged to differ.
(A)ccording to a new study by Canaccord Genuity, as of Q3 2015, Apple is now making 95% of the smartphone profits. ~ Android Authority
“M” is for “Market share”
Of which you like to boast
But “P” is for “Profit”
And we make the most.
~ not Jony Ive on Twitter
And sales are still going gangbusters too.
iPhone Unit Sales
2007 to 2015E: 907 million
2016E: 275 million (30% of previous 8 years)
~ Neil Cybart
What the heck is going on here?
If one looks again at all of those 1990s PC market dynamics, almost none of them apply to the smartphone market. Phones are NOT generic, fungible commodities:
Phones are bought by individuals on design and user interface.
Phone are also bought on price, and the iPhone is expensive, but the subsidy system weakens the effect (to a varying degree depending on the market and on the proportion of contract versus prepay). Moreover, the price gap between an iPhone and a cheap Android is much smaller in absolute terms than the gap between a Mac and the cheapest PC.
Apple has a massive retail presence and has premium placement in every mobile operator shop
It is in the nature of a phone UI that you CAN show it off in a TV spot – which Apple can now afford (originally, thanks to the cash from the iPod)
Apple is stronger in apps than the competition, and that shows no signs of changing.
In other words, Apple has product/market fit in the phone market in a way that it never had in the personal computer market. ALL of the key dynamics that doomed it in the computer market are fundamentally different in the phone market – this time, they all work in Apple’s favour, and in favour of the high-end market in general. ~ Benedict Evans
The key difference between the desktop market of the 1990s and the mobile markets of today is that In the 1990s, the purchaser of the computer and the user of the computer were quite often two separate people with two separate agendas.
Part of the emancipation of IT was stopping HR, and legal from making all the decisions. Growth of BYOD and OTT services was part of that. ~ Benedict Evans on Twitter (@BenedictEvans)
Today, the purchaser and the user are most often one and the same person. Buyers who are purchasing a computer for their own use think very, very differently from buyers in IT departments. You might even say they “Think Different“.
Valuing price over the user experience is the most consistent (and easiest) mistake in any consumer market analysis. ~ Ben Thompson (@monkbent)
Now Apple’s, rather than Microsoft’s, strengths, came into play. Microsoft’s interests were aligned with the buyers in the IT departments. Apple’s strengths were aligned with the consumer.
As soon as the consumers, rather than corporations, started making the buying decisions, a premium market developed with premium customers who paid premium prices to purchase premium hardware. And premium consumers spent more money — and supported the efforts of more developers — than did bargain hunters who were primarily concerned with lower prices.
The pundits of the 1990s were right when they asserted that developers were essential for the the creation of a successful platform. (Developers, developers, developers, developers.) However, they were wrong when they concluded that developers always follow the platform with the most users.
Developers, don’t follow end users — they follow the money.
Lessons Revised and Re-Learned
When experts are wrong, it’s often because they’re experts on an earlier version of the world. ~ Paul Graham
So let’s review and revise the “lessons” we learned in the 1990s.
— Closed creates markets (see Macintosh and iPhone);
— Open creates cheap products and expands the market that closed created;
— Cheap becomes ubiquitous; however
— Developers follow the money, not the customers.
Therefore, platforms that pay developers the most, attract the most developers.
We got it wrong in the 1990s. If every platform user were of equal value to developers, then the platform with the most users would win every time. But if premium users are worth more than discount users, then developers will be attracted to the platform that makes them the most money, rather than the platform that has the most users.
You don’t count users, you count dollars. If, for example, platform A has one billion users worth one dollar each and platform B has one-tenth the number of users, but each user spends ten times as much on the platform, then — so far as developers are concerned — platform A and platform B are roughly equivalent.
Never, ever, think about something else when you should be thinking about the power of incentives. ~ Charlie Munger
The age of Windows was an anomaly, but we didn’t know that. So we based our future assumptions on the exception, rather than the rule.
Nearly every tech prediction based on lessons drawn from Windows has been proven wrong. ~ Ben Thompson
What is true for most every other market holds true for computing too. Open doesn’t always win. Closed can win. Or open can win. Or both can co-exist.
An answer is invariably the parent of a great family of new questions. ~ John Steinbeck
Android may have the most users, but Apple has the most high-end users.
(I)t’s blindingly obvious in every metric that Apple has most of the high-value users. ~ Benedict Evans (@BenedictEvans)
Apple doesn’t dominate the premium sector of the smartphone industry — they OWN it. No one else is seriously competing for the top 10% of smartphone buyers.
Apple doesn’t want to corner the phone market. It wants to corner the premium phone market. ~ Charles Arthur (@charlesarthur)
Some people connote “premium” with “failure”.
Apple’s philosophy has always been to be consumer-centric. It wants to make easy-to-use, broadly-accessible products. But on some level, it’s failing consumers when only 18% of the global smartphone population has an iPhone. ~ Jay Yarow, Business Insider, 24 May 2013
Apple is failing consumers by only targeting premium users? Yeah, not so much.
Asking Apple to increase its market share by selling cheaper phones is like asking Tiffany & Co. to increase its market share by selling more costume jewelry.
App store revenue: Poor disclosure and rounded numbers, but looks like iOS and Google Android “might” be roughly level. ~ Benedict Evans (@BenedictEvans) 1/6/16
This would still mean iOS and Android have roughly the same app spending despite close to 2.5x more active Android devices. Benedict Evans (@BenedictEvans) 1/6/16
Google is the new Microsoft but Android is not the new Windows. ~ Benedict Evans (@BenedictEvans)
Benedict Evans started his article with the following quote:
History teaches us nothing except that something will happen. ~ Hugh Trevor-Roper
With all due respect, Hugh Trevor-Roper is wrong. Just because we don’t always learn from history doesn’t mean that history has nothing to teach us.
Teachers open the door, but you must enter by yourself. ~ Chinese Proverb
It’s not enough to know history, we have to analyze and understand it too.
Any fool can know. The point is to understand. ~ Albert Einstein
There is a great difference between knowing and understanding: you can know a lot about something and not really understand it. ~ Charles F. Kettering
Why Does Any Of This Even Matter?
So why does any of this even matter? It’s ancient history, right?
The illiterate of the 21st century will not be those who cannot read and write, but those who cannot learn, unlearn, and relearn. ~ Alvin Toffler
We are currently being inundated with new platforms. And older platforms are desperately trying to remain relevant in new product categories.
— Apple just introduced three new platforms with the Apple Watch, iPad Pro and Apple TV.
— Google continues to upgrade and alter Android and they recently introduced Android Wear.
— Microsoft is trying to stretch Windows — formerly it’s notebook/desktop only operating system — into a system that works on desktops, notebooks, hybrids, tablets and phones.
— Amazon keeps sticking its nose into the platform arena (where, so far, it has consistently been bloodied).
— Several watch makers are trying to get into the platform game.
— Blackberry has a platform that’s hanging on for dear life.
— Traditional car manufacturers are in a desperate race against new entrants, such as Apple and Google, to create new software both for drivers and for driverless vehicles.
So, who’s going to win and who’s going to lose the new platform wars?
I always avoid prophesying beforehand, because it is a much better policy to prophesy after the event has already taken place. ~ Winston Churchill
I don’t try to predict the future. It’s hard enough just trying to convince those still living in the past that they are already living in the present.
Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window. ~ Peter Drucker
I’ll end with these two thoughts.
Alan Kay once said:
The best way to predict the future is to invent it.
True enough. But as a know-nothing writer who creates nothing and critiques everything, I lean more toward John Siracusa’s take on the future:
The best way to predict the future is to complain about it for 15 years. ~ John Siracusa (@siracusa)