TOC The diabolo effect Your Turn

January 12, 2010

Adopters of an eremitic lifestyle may not have noticed. All others are aware of what the print title of a Brad Stone and Nick Bilton's article calls "a deluge of devices for reading and surfing" (*). Add new smartphones to the mix and deny if you dare any yearning for a sense of direction.

Jon Rubinstein, CEO of Palm, is ready to obliged. "The way to create the most value [...] is by closely integrating hardware and software and keeping full control of the user experience" he told Richard Waters (**). In the car dashboard business reviewed by Ashlee Vance and Matt Richtel (***), his advice is invaluable to insure safe driving. Besides such rare niches, remember this as the one direction not to follow.

For better guidance, read John Gapper as he exposes openness as a highly ambiguous criteria (****). "Apple is not as closed as Google portrays it, and (sic) nor is Google as open". Space fails me to paraphrase his argumentation. It is enough to say it is as correct as his choice of protagonists is perceptive. Four years ago Microsoft and Google waged a battle. Two years ago Google emerged the clear winner. Now the new hardware awakening puts Apple into the role of a challenger.

Some news are more equal than others. Take Richard Waters' report on "the launch [by Google] of an online store to sell handsets and service from [telephone] operators on both sides of the Atlantic", coupled with its "new HTC phone, known as Nexus One" (*****). Turn to David Gelles and look at Apple's "purchasing Quatro Wireless, a mobile advertising company, for a reported $275m" (******).

Both journalists used the martial concept of battle "front". Do not dismiss this as a trite metaphor. As Jack Tramiel liked to say (1), truly "business is war", albeit of a less violent kind. Do not however confuse war among businesses with product competition. Writing "on the evolution of technology", Jason Pontin righfully stresses the strategic importance of "the modes of business" over isolated products (*******). No wonder Google and Apple are keen to mark each other's business even with an inferior offer. Was Microsoft Explorer better than Netscape Navigator?

While short-sighted generals are content to refight the last war, the best find a way to victory in the ageless lessons of history. Victory in business is often the fruit of having established a monopoly, especially when the economy follows a capitalist model. Clausewitz I am not but, when it comes to information technology, I dare say the most durable monopolies are de facto based on the diabolo effect (2).

Picture a cup set upside down on a table. On top of it, pile a second cup upside up and you have the idea of what a diabolo looks like (3). The joined bottoms represent the aspiring information platform, the upper cup its power to attract all kinds of applications, the bottom cup its power to run on all kinds of architectures. The successful monopolist is the one with the biggest diabolo. For personal computing, it was Microsoft, thanks to its operating system. For corporate computing, it still is Oracle, thanks to its relational database.

In hindsight, it makes sense that most people flock to the biggest diabolo available. If a developer, why ignore the quickest way to ensure compatibility with as many architectures as possible. If an architect, why ruin oneself in replicating application availability? If a user, why restrict one's future freedom to be able to access the best applications on the best architectures?

To win, the would-be monopolist must go after the right target. Aim too high and you develop one more application, too low and you design one more architecture. In both cases your added value will sooner or later be squeezed to the monopolist's benefit. The latter simply absorbs the best applications above into its platform and dictates its price even to the best architectures below. But aim right, pull slightly ahead of your direct competitors and your initial success will sweetly feed upon itself in view of the diabolo effect.

Once established though, no dominant diabolo is for ever. Innovative architectures, cellphones for example, may thrive with just one key application like communication. Yet no architecture can be left outside of the bottom cup lest it nurture a competing diabolo. In times of rapid hardware evolution, even monopolist resources can become strained. Even worse, an innovative application, search for instance, may find itself so disruptive the monopolist fails to augment its platform on time.

We have spoken in terms of offer but do not forget the accompanying business model. Google's real innovation is how it monetized search with ads.

Personal operating systems may well be reduced today to a small component of smartphones below and, above, of ad-powered, cloud-based information services. Our model may well explain the decline of Microsoft and the rise of Google. But can it help making sense of the current chaos?

First what happens in the absence of a diabolo monopolist? Check Brian Stelter on how "[content provider] Scripps yanked [two] channels from [cable provider] Cablevision on New Year's Day" (********). Their "bickering" reflects how profits are traditionally shared between distributors and manufacturers when both parties have a monopoly, the former over some consumers, the latter over some consumables.

Affected users may find themselves no more than powerless pawns. Still such news are but tactical. A long as it is enforced, net neutrality undercuts the strategic position of bandwidth service providers. How will they counter Google as it promotes YouYube as the right way to reach users?

Meanwhile Jenna Wortham reports that AT&T is "planning to sell smartphones running the Android mobile [OS]" (*********). Is this a sign of strength by the distribution partner of Apple for its iPhone or the belated scramble of an architecture to be covered by the winning diabolo?

The truth is. The more intelligent the devices, the more important their application portfolio become. And the more smart devices proliferate, the higher the stakes in what Richard Waters and Chris Nuttall's analysis calls "the gadget gamble" (**********). For "both companies and consumers", "back the wrong choice [and] face high penalties", i.e. loose the benefits of the future dominant diabolo effect.

And so our effect is nothing mysterious. When no dominant diabolo exists, creating one meets a strong market demand for predictability relative to one's vital information plant. Is Google stretching its resources, as Microsoft before, in defending its dominant diabolo status? Can Apple or a third party truly bid for a durable diabolo effect? Could the field segment into several diabolos, as it did in the past with Microsoft and Oracle?

I am afraid I must delay tackling these questions till next week. But I must warn the readers. The devil is in the diabolo.

Philippe Coueignoux

  • (*) ................... A Deluge of Devices for Reading and Surfing, by Brad Stone and Nick Bilton (New York Times) - January 9, 2010
  • (**) ................. Palm seeks to build sales off strong platform, by Richard Waters (Financial Times) - January 11, 2010
  • (***) ............... Despite Risks, Internet Creeps Onto Dashboard, by Ashlee Vance and Matt Richtel (New York Times) - January 7, 2010
  • (****) ............. Google's half-open battle with Apple, by John Gapper (Financial Times) - January 7, 2010
  • (*****) ........... Google in new push into mobile phones with online store launch, by Richard Waters (Financial Times) - January 7, 2010
  • (******) ......... Apple buys mobile ad company, by David Gelles (Financial Times) - January 6, 2010
  • (*******) ....... On the Evolution of Technology, by Jason Pontin (Technology Review) - January/February, 2010
  • (********) ..... In a Clash Over Cable, Consumers Lose, by Brian Stelter (New York Times) - January 7, 2010
  • (*********) ... AT&T to Sell Smartphones Using the Android System, by Jenna Wortham (New York Times) - January 7, 2010
  • (**********) . The gadget gamble, by Richard Waters and Chris Nuttall (Financial Times) - January 9, 2010
  • (1) see Commodore in the Wikepedia
  • (2) the diabolo effect came out of a collaborative effort with Philippe Compagnion for a '92 consulting project at Group Bull
  • (3) see diabolo in the Wikepedia
January 2010
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