Sunday, August 25, 2013

Krugman on Microsoft and Apple

Paul Krugman is mostly correct:

Back in the 80s, Microsoft and Apple both had operating systems to sell; Apple’s was clearly better. But Apple misunderstood the nature of the market

He argues that Microsoft "won" in the 90s thanks to network effects it exploited when Apple's superior product was not opened to more hardware vendors. Similarly, the iPhone had an early technical lead that is sustained through network effects due to its large base of developers. Steve Jobs' controlling nature resulted in products that do some things very well and reliably, but quickly become difficult or cumbersome when you stray from whatever he thought was good for you.

My take: Complexity breeds sluggishness when promoting anything new. Apple misses plenty of niche markets they might have colonized with a more flexible approach, but they maintain agility to add new things to the existing platform -- and see them adopted. Whether this is a sustaining advantage depends much on their ability to continue picking market winners. During the 90s they lost their sense of which products were worth pursuing, under-investing in things like Quicktake digital cameras, for example, while over investing on existing products like Mac hardware (Powerbook) or OS features (OpenDoc) that proved to be less important.

By the way, I disagree with Daring Fireball on one point: although technically the Mac did ultimately succeed, that was the halo effect of iPod, etc. If Apple had focused just on the Mac, it would have remained a tiny niche.