Re: Some interesting economic facts

[Mitch Stone <mstone@vc.net>]

In reply to Matt Deatrick's message sent 4/22/98 9:53 PM:

>My take is that M$ is scared of the changes that are going to inevitably
>occur in the software market. My job, as a good citizen, is to make sure
>that they can't get in the way of that happening. I don't want to wait
>another twenty years for the next best thing in operating systems because
>of a monopoly. 

Right, at some point in their evolution from small to large, companies 
alter their character from being change agents to being change adverse. 
Microsoft, for all their prattle about driving innovation, certainly 
falls into the latter category. Most people haven't caught on to this 
fact -- they presume that the software industry is as subject to change 
today as it was ten or 20 years ago. This leads to the "overthrow" 
fallacy (IBM was overthrown by Microsoft, Microsoft will be overthrown by 
...). All we need do is look at Netscape to debunk that theory.

>	Yes, the OEM's are in a bad position. And when M$ offers them IE free, it
>gives them the chance to make a margin up somehwere. They will take any
>advantage they can, unfotunately they all have the same advantage system
>from M$ to work with. It is odd to me that OEM's scrape out a 10% profit
>margin whilst M$ gets 20-30% margins. I mean lets be honest for one second,
>this is a symbiotic relationship, isn't it? How did we get here? M$ got us
>here, and now we have to do something about it.

I'll refrain from using the word "accident" here, because it annoys some 
folks on this list, but this entire business was certainly a serendipity 
for Microsoft. When IBM placed the PC architecture into the public domain 
without having meant to do so, Microsoft became the principal 
beneficiary. This was an awfully sweet deal for Microsoft, with the clone 
makers handling the low margin/decreasing returns part of the business, 
and Microsoft taking on the high margin/increasing returns part. A 
symbiotic relationship, maybe, but with Microsoft holding a straight 
flush. 

With cloners like Compaq currently reporting virtually no profits, and 
Microsoft announcing yet another windfall, we can see where this path 
leads. One would hope to some kind of mutiny, but that may be pure 
wishful thinking.

When the pundits lambaste Apple for not being "smart" enough to license 
clones, they are leaning on a fundamental historical error for their sole 
support. Fact is, the Apple model is the one IBM attempted to implement. 
Their failure to do so cost them the leadership of the industry, and 
many, many billions of dollars (remember when Gates predicted IBM's 
imminent bankruptcy?). The real clone story is virtually never told. 
Mainly, it reveals Gates and Co. as being not nearly so insightful as the 
conventional wisdom suggests. The heavens opened up, and billions poured 
forth. Gates stuck out his arms and caught it. What a brilliant move. 

   Mitch Stone
   Editor, Boycott Microsoft
   http://www.vcnet.com/bms 
 +---
   While we're all very dependent on technology, 
   it doesn't always work --- Bill Gates