Software changes everything

One of my long-standing rants is that software makes open and fair competition impractical.

The software industry is like no other industry. If I buy a washer, I don't have to worry about it being compatible with my microwave. If I buy a car, I don't have to worry about it being compatible with the car my employer drives.

And yet, those are exactly the kind of restrictions that software product enforce on all of us. It is these interlocking dependencies that trend the whole industry toward the creation of monopolies.

The economy-of-scale in software production is radical. You spend all your R&D money creating just ONE application, and then you make and sell copies of it. Imagine if Ford could build just one Ford Explorer, and then use a matter-replicator to clone Ford Explorers for free. Ford would just build ONE 50 billion dollar car with every feature imaginable (a bar, a refrigerator, a washer/dryer, a bed, a swimming pool, a gym, a full kitchen, a tennis court, jet engines, a holodeck, a medical bay, etc) and then just clone free copies of it for sale.

Since that economy-of-scale is so skewed, the smaller company cannot compete effectively with the bigger company because the smaller company could never afford the 50 billion dollar start-up cost to build that first car.

And that's only the startup costs. It gets worse. Consider this: If Ford sells 10 million of these super Explorers, they can afford to sell them for $5,000 each to recoup their $50 billion dollar investment to make the first one. But if the competition can only sell 5 million super cars, they have to sell them for $10,000 each, or twice the price.

For a software product, once you pay for the initial investment to produce the product, the amount of money you can charge per copy is determined by the number of copies you sell, not by the cost of labor and materials. So, to compete with Ford, you have to have an instant customer base equal in size to Ford's in order to match Ford's price. This fosters a winner-takes-all system where the company who gains the greatest market share can therefore charge the least amount of money per copy, and thus run everyone else out of business. It trends toward monopoly creation.

And of course, in my anaology, Ford is Microsoft, and Windows has become the 50 billion dollar ridiculous car with everything, and no other company can match the initial investment it takes to compete. And no other company can match the instant user-base necessary to match Microsoft's revenue stream. Even if a company somehow magically produced a superior Operating System, it would not sell on the market due to the interlocking nature of software, where compatibility is more important than anything else.

Another example: Ford Explorers don't come with a Media Center as standard equipment, because a Media Center (with DVD player and T.V. screens and game console) adds $1,000 to the price of the car, and not everyone wants that. So, instead, it's a $1,000 option you can buy.

But with software, since every new feature can be copied for "free", Microsoft can add a Media Player (or any other crazy option) as "standard" equipment to the OS. If software were like cars, it would cost Microsoft an extra $40 in materials and labor to add a Media Player to each copy of Windows, and Microsoft would have to pass that cost on to the customer by raising the price of Windows, or by making a Media Player an option that the customer can add on for $50.

And in that ideal market, Real Player and all kinds of other media players could compete fairly in the Operating System after-market. If Microsoft had to pay material and labor for each "option" they've added to Windows as "standard" equipment, Windows would be a million dollars per copy. Either that or Microsoft would finally be forced to separate their products and sell Windows as just an Operating System.

So, given that:

1) Software enforces compatibility issues unlike any other category of product on this Earth.
2) Software has an economy-of-scale unlike any other category of product on this Earth.
3) These facts create a winner-takes-all environment that makes fair competition very difficult.

Therefore:

The anti-trust laws for software must be FAR stricter than they are for any other category of product on this Earth.

"But, there is some competition, isn't there? What about Macintosh?"

Yes, Macintosh does have a non-Microsoft OS. But Microsoft also gave Apple a huge cash infusion a few years back just to keep Apple alive, because Apple is has never been able to claim anything beyond a specialized niche market. (For all the reasons I've listed above.)

"But what about the Open Source movement?"

Yes, the Open Source movement is very interesting indeed! It's like people from all over the globe working together in the free time to build the super kit-car that can actually compete with the super Ford Explorer. The Open Source groups can provide a lot of useful software, but there will also be a market for commercial software too. And wherever there is a market for commercial software, there exists the dangers I have outlined above, and they need to be addressed with legislation, or better enforcement of current laws.

"But maybe having monopolies isn't so bad if it means lower prices for the consumer. I mean, I just bought a Ford Explorer that has jet engines and a tennis court for only $5,000! WOW! And I can buy a high-power OS like Windows XP for only $150!"

If we want to declare Microsoft to be a regulated monopoly (like the power companies), then I suppose we can do that. But I think it would be a shame since it would put a lot of good and innovative companies out of business. I think Microsoft has a proven record of stagnation and rapid price inflation when they have no competition in a given area. And I think that competition and innovation is what ultimately leads to the most consumer benefits and lowest prices in the long-run.