charles mueller <[EMAIL PROTECTED]> wwrote:
> I have a private communication advising me that the software
>industry, in its entirety, is inherently monopolistic because of scale
>economies. There are 2 costs, I'm told, (1) development, and (2)
>reproduction and distribution. Only the first is expensive. The second,
>reproduction and distribution, is virtually costless. The industry is
>divided into a series of "niche" markets, all of which "rapidly evolve
>toward monopoly," since the leaders in all of the niches "can defend their
>market share by reducing their prices to practically nothing, making price
>competition SUICIDAL for newcomers." The goal of all firms in the software
>industry is the same--"to gain a dominant position in a NEW niche market.
>There is essentially no new investment in EXISTING niche markets, since it
>is impossible to compete with an established dominant player on the basis of
>lower costs...."
[...]
> Where, then, are the big efficiencies in the software industry that
>condemn it to only 1 firm in each of its various "niches," e.g., Bill (and
>Bill alone) in OS?
There is more than one tactic leading to monopoly domination in software.
Another nice example is the computer aided design/drafting field, where
in the PC market, Autodesk is dominant. They staked out their claim
early, with a package that was sufficiently detailed and well written to
be accurate and adaptable for professional use. Once enshrined in the
leadership position, they had a number of weapons to keep their lead.
The first was their copyrighted file format. For many types of software,
there is a strong need for users to communicate, and so they must have
their data in compatible form. The usual evolution is that the first
vendor to establish domination sets the file format, and all users
must rush to acquire their software so as to ensure effective communication
with other workers in their industry. As the file format is copyright,
the dominant vendor can then control who uses this format, and how.
The second weapon comes from the financial rewards of domination.
Once accepted as the standard, the vendor can drive their prices up
to what the market will bear. This results in substantial cash assets.
Thus ensconsed, they have little incentive to improve their product,
which in the case of autodesk, was abysmally awkward to use, requiring
painful hours to learn arcane commands, and with a truly viciously
hostile user interface. As the rest of the industry made rapid advances
in interface, autodesk continued to put out product which, for one of
many examples, required users to remember the names of files they
needed and type them in correctly, rather than pulling up a menu
and selecting files with a pointer. The increasing inadequacy of
Autodesk's CAD package inspired the entry of several small competitors
with more user friendly packages, which used different file protocols,
but included translation routines to convert formats. There was some
litigation activity around the file formats, of which I know no
details, but Autodesk's most effective method of dealing with these
competitors was to use their wealth to buy them out. They were then
shut down, and little bits of their innovation found their way into
Acad products, which evolved user-friendliness in their interface
with almost glacial speed.
For most young programmers, the prospect of a big buyout, which leaves
them independently wealthy with no further effort, is just too great
a temptation, when they are in that part of the development phase
of their company when they are likely working 16 hour days and living
on peanut butter sandwiches. Suddenly they can buy a house and not
have to think about working again for a decade, or possibly ever.
It's like winning the lottery. And for the big software giant, it's
a small part of the cost of doing business.
-Pete Vincent
