A recent article by NY Times reporter Steve Lohr discussed the rising importance of data as a major competitive differentiator. The article noted that regulators, policy makers and academics in Europe and the US are increasingly concerned that the vast data assets of digital giants could become a competitive barrier to startups and innovation.
Such competitive concerns have long applied to hardware and software platforms in the IT industry. IBM’s System 360 family of mainframes, announced in 1964, became the premier platform for commercial computing over the following 25 years by developing a 3rd party ecosystem of add-on hardware, software and services. In 1969, the US Department of Justice launched an antitrust suit against IBM based on its market dominance, which was eventually dropped in 1982 given the changing environment in the IT industry.
In the 1980s and 1990s, the explosive growth of personal computers was largely driven by the Wintel platform based on Microsoft’s Windows operating systems and Intel’s microprocessors, which attracted an even larger ecosystem of hardware and software developers. It also attracted the attention of the Justice Department and several states, which sued Microsoft in the 1990s, - a lawsuit that was eventually settled. More recently, the European Commission has accused Google of unfair competition based on its Android mobile operating system.
The competitive concerns surrounding these various platforms are closely linked to the concept of network effects. Scale significantly increases a platform’s value. The more 3rd party applications and services a platform offers, the more users it will attract, helping it then attract more offerings, which in turn brings in more users, which then makes the platform even more valuable… and on and on and on.