Thursday, February 21, 2008

The death of HD-DVD, the fall of Microsoft and the power of free markets.

In Lessons from the Death of HD-DVD, Daniel Dilger points out the Blu-Ray's success (now almost inevitable) over HD-DVD is a lot more than just one media format winning out over a rival. It is also the combined energy of an entire industry focussed against Microsft's attempt to "embrace and extend" and take over that industry.

In the article, Dilger points out that this is hardly the first example. A lot of Microsoft's recent projects have suffered the same fate, including the XBox 360, the Zune, Windows CE, and even Windows Vista. Part of this is due to the technical merits of the competition, but a lot of it is a direct result of the competition deciding to gang up against Microsoft.

On the surface, this would seem like a cartel, which is illegal in the US. For those unfamiliar with the term, In a cartel. industry leaders conspire together in order to control a market. This usually results in high prices and (when the market does not involve commodities) inferior products. IMO, it also destroys a free market economy, since the cartel prevents customers from having choices, and it prevents competitors from entering the market.

But here, we're seeing something different. Microsoft's competitors are not conspiring together. They are all independently deciding to focus their individual efforts against Microsoft. And it's not because they want to control the market (although I'm sure they wouldn't object to that outcome), but because they want to prevent Microsoft from establishing itself as the controlling entity. And not just for arbitrary reasons, but because Microsoft has a well-established history of abusing its monopoly power.

There have been anti-trust lawsuits against Microsoft, but history has shown them to be ineffective. Microsoft consents to token actions and continues abusing their monopoly power. This time around, however, the industry is not trying to use the legal system. Instead, the competition is using the power it has always had - they are choosing to support and promote competing standards, they are shipping products using competing standards, and they are selling those products to customers. The market is bringing down Microsoft where decades of litigation could not.

I find this very uplifting and reassuring. A monopolistic company does not inevitably dominate its markets. As long as competitors (no matter how small they may be) are free to sell alternative products, consumers end up with all of the real power. When they choose to vote in unison with their dollars, not even the biggest company can fight the trend.

The only real question here is: Will Microsoft see the writing on the wall and start delivering what customers want, or will they continue their current behavior and be further marginalized in the marketplace. Regardless of what they choose, it's good for consumers.


SCD said...

This is really insightful, Dave. Thanks.

Being that I only follow such things in a cursory manner, I didn't realize that HD DVD vs blu-ray was MS vs all comers. It also hadn't occured to me how many times recently MS has failed to drive all competitors out of a given market. So ingrained in my brain are O/S 2, Netscape, etc., where MS won with an inferior product, I failed to realize that that trick hasn't worked in quite a while.

Shamino said...

This is one of the reasons I read Roughly Drafted. Daniel Dilger does an incredible amount of analysis in his articles, so you come away having learned something more than just the raw facts of the day's news.