Part 17. How Low Can You Go?
The recent testimony of Bill Gates and his rivals in Washington, DC, reminded me
a lot of limbo dancing. A long-lost fad of the 1950s, limbo involved dancing under
a horizontal bar that got progressively lower with each verse of song. Various partygoers
took turns attempting to glide under the ever-lower bar without touching it. Eventually,
of course, a physical limit was reached and the bar was touched by someone. How
low can you go?
"In the software business, there is basically no limit to the quantity of production,"
stated Mr. Gates. True. For a dollar apiece, you can fill a huge warehouse full
of program CDs. However, this also shows the far greater danger of a software monopoly
than any other kind of monopoly. Since the production costs are so low, the software
company that can control distribution channels has a tremendous long-term advantage.
This is because a rival cannot find some dramatic cost-reduction strategy on the
production side, because production costs per unit are already near zero. How much
lower can you go?
When Microsoft gained monopoly leverage over software distribution via the retail
channel, many people thought IBM was finished. How would IBM, or any other company,
be able to sell software without paying a "Microsoft tax" on every transaction,
since the channel was owned by Microsoft? Furthermore, since the per-program distribution
cost approached one dollar, how could IBM find a breakthrough that would allow them
an increased production efficiency, to offset the monopolistic condition of the
channel? It seemed hopeless to many, and that is why most people not only wrote
off IBM, but dismissed other software makers as well.
What happened to change all this? IBM lowered the bar. IBM bundled the Internet
with OS/2 Warp version 3. Now both unit production costs and distribution costs
of software were essentially zero. ZERO! How low can you go? Zero!
Yes, the operating system itself still suffered from the previous verse of the song
-- Warp 3 had to fight a losing battle in the channel. But what it brought to the
desktop was the legitimization of the Internet. No longer was the Net just a hang-out
for geeks and tinkerers. If stodgy old IBM thought it was cool, if trusty old IBM
thought is was safe, if profit-driven IBM thought it was part of the business world,
then the business world came to accept the Internet as an important tool. IBM made
the difference between the Internet as an academic curiousity and the Internet as
a corporate fixture.
On the Internet, anybody can ship software essentially for free. Anybody can make
a copy of software essentially for free. Nobody pays Microsoft a tax on each transaction,
because transactions take place without the retail distribution channel that Microsoft
worked so hard to monopolize. But in this gain is also a great risk, the awful possibility
that Microsoft might gain control of the Internet as well. There will not be another
"second chance" for a free software market. For once you've limboed to
the floor, there's no lower you can go.
Most recent revision: March 5, 1998
Copyright © 1998, Tom Nadeau
All Rights Reserved.