Digital Wars

In Digital Wars: Apple, Google, Microsoft and the Battle for the Internet Charles Arthur chronicles the emergence of the giants of the technology industry. The book is divided into three eras for each of there is a clear leader that has risen to the top through a specific advantage.

The first is the personal computing era which has the obvious leader of Microsoft. In fact Microsoft, through its founder Bill Gates had set out the clear aim of “a computer on every desk and on every home”. This period was characterized by Microsoft’s development of the horizontal business where Microsoft writes the software and licenses it to hardware manufacturers. This enabled manufacturers to attain the “maximum possible production volume and the lowest possible prices for consumers”. Arthur then attempts to reduce the achievement saying it comes with elements that are “harder to quantify: user experience and collateral costs” explaining that Windows was hard to use for end-users and the security holes numerous. A significant help to aiding Microsoft dominate the period of personal computing was its monopolistic aims in the PC market. Arthur shows that this was shown in repeated instances such as Microsoft’s elimination of Netscape. The antitrust case that Microsoft faced in 1998 would something that would prove to be an existential threat to Microsoft’s identity for decades to come. In fact employees inside Microsoft became more skeptical of the company as news of its arm twisting measures to gain market share came out.

Meanwhile Apple was the only direct competitor Microsoft would have in the PC market but its high prices and internal politics would make it difficult for the company to keep up. Steadily creeping up on Microsoft without its knowing was Google which had been founded in the same year Microsoft would begin to face the antitrust lawsuit.

The second era that can be identified in Arthur’s book belongs to Apple with the iPod and its iTunes music store. Arthur explains how the concept of delivering music through the internet actually existed way before iTunes but was filled with copyright protection DRM that made it unbearable for users to listen to music they had bought. What spurred users on in online downloading of music was the iPod which came as a result of technological progress in Toshiba, who showed Steve Jobs the first 2.5” hard drives that would later go into the first iPod. Arthur explains that the iPod was first seen as a method to get users to switch from Windows to the Mac platform. The iPod had an advantage over all other portable music players in that time, it allowed users to play DRM free music.

The arrival of broadband internet in the majority of American homes made P2P filesharing the music industry’s biggest enemy and would lead to the introduction of complicated DRM protected music. The main creator of heavily DRMed music was Microsoft. Arthur explains that the ease of use, that plagued end-users on the Windows PC, made the horizontal production model for MP3 players difficult. By creating the iPod Apple showcased the advantages of the vertical model where Apple controlled every step of hardware production and tying it in closely with the software. Arthur explains that this is what gives users the best experience, in any kind of consumer electronics product.

Competitors such as Dell, Creative and Rio were simply left behind when it came to becoming the next best music player, although they had far superior technical specifications. After demands from retailers such as Best Buy and Walmart, which Apple didn’t cater to, Microsoft entered the music player market with its own version of an ‘iPod killer’ called the Zune. Microsoft’s previous foray into the digital music industry with the PlaysForSure DRM had failed and been killed off. After the success Microsoft was having in entertainment hardware with the XBOX it saw the possibility to expand and once again try itself at the music industry. The Zune was given everything that the iPod didn’t have: Wi-Fi to share songs and more storage space. Although the Zune got off to a good start it ultimately failed, doomed by the heavy integration into a DRM system. Faced with two systems users ultimately chose that which was easier to use.

All while these two battles were going on between the two main hardware companies a third battle would shape up to be even more important. The arrival of the internet brought online search with it which was something neither Apple nor Microsoft had expected to be as important as it has become today. Search had already existed, through companies such as AltaVista, Lycos and Yahoo, but yielded bad results filled with spam. Microsoft began to see that having a strong presence on the internet was hugely important to its business. It didn’t want the competition online to overtake it the way Netscape had in browsers. Arthur explains that Microsoft couldn’t harness the internet the way it could software which was due to the DNA of the company because the founders and their employees “hadn’t grown up using the internet” the way that the newer generation had. Yet Microsoft had been made aware of the importance of the internet internally by J Allard, the future Chief Technology Officer of the Entertainment Devices division. In 1997 Microsoft launched MSN.com which would become one of the most successful internet portals at the beginning of the internet age, yet Arthur explains that the internet still wasn’t a priority for Microsoft at the time.

What changed search for good was Google’s ranking technology which considered the links going in to a certain website in the ranking of the page. This was widely acknowledged in the industry as a better search product even by Yahoo to whom Google’s founders had tried to sell their product. Yet every existing search provider didn’t see the need to invest in better search quality. What they focused on was solely advertising revenue of which the leader in that time was GoTo.

Looking at the technology giants of the time, Arthur explains that all of them had other priorities. Especially Microsoft had other, more important, things on its plate at the time than getting into internet search. Alongside the launch of Windows XP, a combination of Windows 98 and Windows NT, Microsoft was also dealing with the antitrust lawsuit that it was focused on moving past. Arthur explains that this lawsuit is something that shaped Microsoft in a number of ways and can be seen on this issue again. Combined with the very low profit margins that existed in search, the idea of starting a new venture online was not on any technology giant’s priority list at the time. Over the following years search would become something increasingly on every company’s priority list.

Smartphones are the last era that Arthur goes into. He sees this one as a new category that was launched into the consumer mindset by Apple with the announcement of the iPhone. Using the iPod brand name and iTunes platform Apple had made a previous attempt at cracking the mobile phone industry although that partnership, with Motorola for the Rokr phone, had gone nowhere. The mobile phone market previous to the iPhone consisted simply of general public owning feature phones and businessmen who used Blackberrys or Treos which connected to the internet for the sole purpose of emailing. The advancement in mobile internet made the idea of the iPhone a possibility. After the release of the iPhone Apple took over the market of smartphones. Using its iTunes platform it enabled third party developers to create apps which made the handset even more popular. For the first few years of the smartphone era the iPhone was alone competing only with the dying platform of Windows Mobile. The arrival of Android changed Apple’s stance in the smartphone industry and took a hold on the smartphone industry from the bottom up. Microsoft couldn’t stand still and see the two Silicon Valley giants take over yet another industry so it launched Windows Phone and sold it much in the same way that it sold Windows. The smartphone era had three strong and different competitors each with a different aim. Apple continued its vertical business model of software and hardware which it believed gave users the best experience and would subsequently lead to the most sales. Google gave out its Android software by releasing it as Open Source with the aim of continuing to have as many people as possible using Google Search no matter what kind of hardware they are using. Microsoft, who once again implemented the horizontal model, has the most at risk seeing that if it was erased from the growing mobile market less people would use Windows and Office leading to less sales in software licenses. Additionally Microsoft was also using smartphones to compete with Google and push the use of its own online search service Bing.

While Arthur gives a good summary of the history of big technology companies he has a strong focus on individual hardware rather than how each company has built itself an ecosystem to which it tries to get consumers locked into. Google does this through its various services such as Gmail, Google Drive and Android. These all fail to get mentioned in connection to one another yet they make up one of the strongest platforms today.

The only true description of an ecosystem that Arthur gives is of Apple which he describes through the accessory market that was created around Apple’s products. Yet this wasn’t the only way Apple attempted to create an ecosystem. The software and cloud services, such as iWork and iCloud, were all geared towards getting Mac users off Microsoft’s Office suite and locked into Apple’s ecosystem. These products are only mentioned in passing in Digital Wars. Yet this is where the biggest problem of the book becomes apparent. Arthur has a strong bias towards Apple as being the stronger platform. He portrays Apple as the company that has revolutionized a number of categories in the technology industry which is correct to some extent. Yet an important factor he neglects is that Apple has done this so successfully, despite its high prices for its lower hardware configurations, through marketing and design. The technology devices industry is one of the few where these two factors have influenced such a large number of consumers. Another factor he fails to realize is how Apple was dependent on Steve Job’s vision for it to succeed. All of the products that Apple has launched in the past years are derived from product lines that Jobs envisioned. Since his death Apple has often been criticized for its lack of direction. Arthur fails to recognize that it isn’t viable for a company to be centered around a single figure.

This bias and hardware centric vision is what clouds Arthur’s vision of the future of technology. Reflected in the recent years’ drops in PC sales, even Apple PCs, is the fact that the computing power for the public has achieved a high point. People no longer have to buy a new computer to be able to run more powerful software or higher quality games. The internet has made it possible for computers to ‘outsource’ the computing necessities onto the internet. This is where the future of technology lies.

At the beginning of his book Arthur mentions the arrival of Facebook as the newcomer who is once again going to disrupt the technology platforms. After that the reader doesn’t see another mention of it or of any other internet based companies. Since the internet is only a service companies that want to continue to fight for users in the future will have to move onto it. This means that the future of technology platforms will be software-centric.

The platforms of the future are going to be segmented into two different groups: the super-platforms and the domain specific platforms. Super platforms are those companies that have built diversified ecosystems that extend to multiple areas of the digital world. Examples of that today are Apple, Microsoft, Google, Facebook and Amazon. Each of these companies has extended its main business to other areas. Facebook’s recent acquisitions of Whatsapp and Oculus show how it’s attempting to extend its reach of connecting people on desktop, mobile and in gaming. Domain platforms, such as Dropbox or Spotify, will focus on specific aspects of our digital lives.

There are a number of reasons for the rise of software but none are more significant than the rapid expansion of high speed internet connections through fiber optic connections and mobile 4G connections. The rapid adoption of 4G networks around the world and the growth of smartphones has made people less dependent on desktop PCs. Our hardware has now only become a portal to the internet where most of our digital tasks will be done. For this it’s not necessary anymore to have as powerful hardware.

Google is the perfect example of a platform that is already doing this today. It has made cloud storage and computing easily accessible to the masses. Programs that would before have necessitated a lot of storage are now accessible from a low powered netbook with a web browser. Google has even moved one step further with its series of Chromebooks that have low hardware specifications and a price accessible to the masses. This is exactly the direction that digital platforms are taking. The companies that will want to survive the digital wars of the future will have be software focused and hardware independent. The company that is failing in this domain is obviously Apple which the majority of its software, such as iWork, Aperture and Final Cut Pro inaccessible to other platforms. Since Apple is very hardware dependent and has no products that work on all kinds of hardware it will be increasingly difficult to survive in competition with lower priced hardware manufacturers. Until recently Microsoft was going in a similar direction but with the release of its Office suite for the iPad it has shown it is prepared to create software that is accessible to all. The significant success of Whatsapp on mobile highlights this even more. Whatsapp made it a point of being available on all platforms, even the very unpopular Symbian, and easily grew to one of the most widely used mobile apps. Yet there is one fault of Whatsapp that will also be significant in the future.

Alongside the evolution to a hardware agnostic digital world the payment model will also change into the freemium subscription. The trend, which has already started now, can be seen in some companies. It’s these companies who will have had enough time to perfect their systems before anyone else who will succeed. Today Spotify is most recognized as having launched with the system of a freemium subscription. Google is another company that has always had freemium subscriptions but as its main revenue source comes from advertisers it has always tended to be more on the free side of freemium. Unexpectedly Microsoft, one of the players from Arthur’s Digital Wars, has also switched to a freemium model for consumers. By looking at the evolution of Microsoft’s Office Suite until today, with Office 365 and Office Online, it has become clear that selling a software license to consumers living in a software centric world is no longer viable for any company.

With the high adoption of smartphones among users it will be important for the different platforms to offer users a seamless experience between mobile and desktop. Users won’t want to have to manually modify their desktop so that it works in accordance with their smartphone. Microsoft has recently started moving in this direction by merging the design of their Windows Phone interface with that of Windows 8. The problem with this is that Windows Phone is for the moment only available on its own proprietary hardware so that moves its platform back into the hardware dependency. The players with the biggest advantages are those such as Facebook that don’t need any kind of specific hardware.

One of the biggest venture capitalism firms in Silicon Valley also defends the view that software is going to eat the world. This philosophy has driven some of their most important and successful investments in companies such as Facebook, Twitter and Whatsapp. The technology industry is constantly innovating and the rise of a dematerialized industry will accelerate the trend. By not being tied to any kind of hardware combined with the help from large companies, such as Amazon Web Services that can provide the backend, it’s easy for small companies to evolve into large platforms very quickly. There are a number of examples for this but none better than Dropbox. Having started out as a small cloud storage company before cloud storage was popular would have been impossible in the period that Arthur describes in Digital Wars. Being an online software company helped it stay alive long enough to become recognized and combined with the right acquisitions, such as that of Mailbox, it has become recognized as the primary productivity platform. Dropbox easily fulfilled the requirements described for it to become a strong platform of the future.

Since the early times of computers the technology industry has always been a war for users. Charles Arthur’s book describes in detail some of the most significant events of the modern technology industry but his vision for the future is clouded by his focus on hardware which he believes was dominated by Apple. While it’s correct that Apple’s innovations helped get the digital industry to where it is today it will ultimately end up getting lost in the future that will be dominated by software creators that are decoupled from hardware. The strongest driver for technological isn’t a company but simply the internet connections that people have. This is what enables companies to provide better quality services and products to consumers.  The internet has create a larger space for innovation than any hardware market could have been. The companies that will want to survive in this era of computing will have to create better quality software products that can be made available to the largest number of people.

Julien RATH

 

Bibliography

Arthur, Charles. Digital Wars: Apple, Google, Microsoft and the Battle for the Internet [Kindle Edition]. London, United Kingdom: Kogan Page, 2012. E-Book.

 

* Julien Rath, is a Graduate Student at Science Po Paris’ School of Communications. (This text is a final paper for the course « Digital, Media, Globalization » offered by Frédéric Martel and Emmanuel Paquette at Science Po. Thanks to M. Rath to allowing us to republish his essay).