There is a great video of Bill Gates speaking to a venture capital company called Global Village that is circulating today, in which Gates claims that losing Microsoft to the benefit of Android is his "biggest mistake" all time".
"So, the biggest mistake of my life is the mismanagement I've engaged in, because Microsoft is not what Android is," says Gates, adding that "Android is the platform standard non-Apple phone – it was a natural thing for Microsoft to win. "
That's right, and you can read a little bit about the circumstances of how Microsoft missed the moving moment here. But I want to focus on what Gates then said, because that is incredibly relevant to the ongoing debate on platforms, regulation, and antitrust laws. Here it is, with my emphasis in bold:
It's very tricky for platforms … these are markets where everyone wins. It's really win-take-all. If you have two times less applications or 90% of applications, you are about to finish. There is room for exactly one non-Apple operating system and what is its value? $ 400 billion that would be transferred from G to M
What Gates describes is called the network effect, which says that the value of the platform for users is actually created by all the other people in this network. There has been a lot of fantastic work on how this is going on in recent years – you may know Ben Thompson, who has exhibited a very refined argument about the network effect called "theory of aggregation".
What's important to know, is that it's well established that the network effect allows winning platforms to reach a huge size and scale. prevent competition. It's a devastating combination that Gates calls a "total disaster." There is a reason why many tech markets are moving towards monopoly or duopoly, like Android and iOS, or Google search, or Facebook, or Uber and Lyft – the network effect makes it virtually impossible to build a competitor because that you can not populate the network. And you can not get away from this problem: Microsoft application developers, who paid well, wrote Windows Phone applications while there were not enough users to get the attention of developers, and … it did not work.
Gates could say that to explain why Windows Phone was not successful – its applications ecosystem did not allow it to compete with Apple and Android – but what it describes is the exact reason why the Technology platform regulation is the subject of so much debate the world: you can not rely on competition to keep these businesses online because it is virtually impossible to build a competitor. Even Microsoft could not do it!
The network effect (or the theory of aggregation, or what you want to call it), is also the reason why the regulatory approaches of the automotive industry, for example, do not adapt very well to the Technology sector: Consumers buy a unique Ford car to a growing car ecosystem that is gaining more and more value with every new user. As a consumer, you can easily switch from a Ford to a Honda to a Chevrolet, but it is much more difficult to move from one software platform to more nested dependencies. That's why Tesla was able to penetrate the market in such a disruptive way and there is a tide of new start-up automotive companies, but not a tide of new search engines, social networks or smartphone operating systems. Gates says all right (underline mine, again):
So, this idea that small differences can get worse, does not exist for many companies. If you are a service company, this does not exist. But for software platforms, it's absolutely gigantic.
It's quite risky, but you intuitively feel this problem throughout the digital economy, which is increasingly being relayed by a handful of platforms and companies. Just ask someone someone who tried at turn away of iMessageor YouTuber trying to leave YouTube: at some point, you're not just leaving a product, you're moving away from it millions of other peopleand this makes it extremely difficult to use your dollars elsewhere. Facebook may have all the scandals that it wants, but everyone still uses Facebook because it's very difficult to leave. What signal does Facebook receive from the market, except that revenue has increased 26% over last quarter?
If you can not send a signal to the market by voting with your dollars, then you must vote for politicians and regulators to put in place strict rules on privacy and insider trading, and to dissociate businesses to create more. competition for user trust and goodwill within these rules. And that is exactly what is happening.
Here is the last quote from Gates that I want to call – again, I want to point out:
It's amazing to have one of the biggest mistakes of all time – and there was this antitrust lawsuit and various things – that our other assets, Windows, Office, are still very powerful, so we are a leading company. If we had that right, we would be the leading company, but good.
Why was the road cleared for Google to become Google? For Android to become Android? Because the increased antitrust review of Microsoft and Windows, which was the monopoly of the original platform, helped open the door. Would you prefer to have several leading companies or one? More competition or less?
This Bill Gates, it's a smart guy.