There is a great video from Bill Gates speaking with a venture capital company called Village Global that is going around today, in which Gates says that Microsoft's mobile losses to Android are & # 39; biggest mistake ever & # 39; is.
"So the biggest mistake ever is the maladministration I was dealing with, making Microsoft not what Android is," says Gates. "Android is the standard non-Apple phone platform. That was normal for Microsoft to win."
This is all true, and you can read more about the circumstances in which Microsoft missed the mobile moment here. But I want to focus on what Gates said next, because it is incredibly relevant to the current discussion about platforms, regulation and antitrust. Here it is, with my emphasis in bold:
It is very difficult for platforms … these are markets where everything is won. It is really a winner-take-all. If you are there with half as many apps or 90 percent as many apps, you are on your way to complete the doom. There is room for exactly one non-Apple operating system and what is that worth? $ 400 billion that would be transferred from company G to company M.
What Gates describes is usually referred to as network effect, which says that the value of the platform for users is really created by all other people in that network. A lot of good work has been investigated on how this has happened in recent years – perhaps you know Ben Thompson, who explained how a very refined discussion about the network effect called & # 39; Aggregation Theory & # 39 ;.
The most important thing to know is that it is well established that the network effect enables the winning platforms to achieve enormous economies of scale and to exclude competition. It is a devastating combination that Gates & # 39; complete ruin & # 39; calls. There is a reason why so many technical markets tend to be monopoly or duopoly, such as Android and iOS, Google Search or Facebook, or Uber and Lyft – the network effect actually makes it impossible to build a competitor because you can't fill the network.
Gates could say this to describe why Windows Phone didn't work – it didn't have the app's ecosystem to compete with Apple and Android – but what he describes is the exact reason why regulating technology platforms is the subject of so many conversations around the world: you cannot count on competition to keep these companies in line, because it is virtually impossible to build a competitor. Even Microsoft couldn't do it!
The network effect (or aggregation theory, or whatever you want to call it) is also the reason why the regulatory approaches to, say, the car industry do not follow so well to the technical industry: consumers buy a single car from Ford, none access to a growing ecosystem of cars that becomes more valuable with every new user. You can easily switch from a Ford to a Honda to a Chevy as a consumer, but it is much harder to switch away from a software platform with multiple interdependent dependencies. That is why Tesla was able to enter the market in such a disruptive way, and why there is currently a flood of new car companies, but not a flood wave of new search engines or social networks or operating systems for smartphones. Gates straight up says the same (again the emphasis):
So this idea that small differences can increase themselves, that does not exist for many companies. If you are a service company, that does not exist. But for software platforms it is absolutely huge.
That is all pretty messy, but you can feel this problem intuitively throughout the digital economy, which is increasingly being mediated by a handful of platforms and companies. Just ask anyone who is trying to switch from iMessage or YouTube that is trying to leave YouTuber: at some point you don't just walk away from a product, you walk away from millions of other people, and that makes it extremely difficult to take your dollars somewhere else. Facebook can have all the scandals it wants, but everyone still uses Facebook because leaving is so difficult. What signal does Facebook get from the market, except that sales in the past quarter increased by 26 percent compared to last year?
If you can't send a signal to the market by voting with your dollars, then you should vote with your voice and force politicians and regulators to set strict rules on privacy and self-action, and destroy companies to do more. create competition for user confidence and goodwill within those rules. And that is exactly what happens.
This is the last quote from Gates that I want to mention – again, the emphasis is on me:
It's amazing that I made one of the biggest mistakes ever – and there was an antitrust case and various things – that our other assets, Windows, Office, are still very strong, that is what we are a leading company. If we had been granted that right, we would be the leading company, but oh well.
Why has the path been cleared for Google to become Google? For Android to become Android? Because Microsoft and Windows antitrust control, the original monopoly platform, helped open the door. Would you rather have several leading companies, or only one? More competition, or less?
That Bill Gates, he's a smart guy.