Innovation Works Better, Faster With Openness, Not Lock-In

from the don't-fear-the-openness dept

Dave Winer has a short, but important post discussing how a new round of entrepreneurs (and VCs) are too focused on locking in users, rather than making use of open standards.

They worry that, if they provide open access to the data their systems accumulate, no one will come to their website, therefore no one will be able to enjoy their lock-in, thereby justifying their multi-million dollar valuations. Why should we care? Problem isn't that they're young, the problem is they have a too-thin value-add to support the kind of investment they've taken on.

Since VCs are now investing in news startups, they are really testing the value of lock-in. I wonder how many of the new crop of VCs understand how this has shaken out in the past. I remember when RSS was just getting started, there were all kinds of fancy content management APIs, some were even in the process of being standardized. They all very quickly evaporated when RSS took hold. The difference between a four-screen spec and a bookshelf. Because you need all that complexity to hide all the lock-in. There was no place for lock-in in RSS. It was too obvious how it worked.

Going for proprietary solutions that lock users in is a short-term strategy from a company afraid of its own ability to innovate. Those who actually know they can continue to innovate long term don't need to worry about locking people in, because people will want to stay. Furthermore, by keeping things open, you enable a wider ecosystem to grow up around things, providing even more value (much of it you don't have to build yourself). It's the same old story around open access, open source and other similar concepts. It's protectionism vs. free markets. It's copyright vs. creative commons. Openness breeds innovations and creativity -- and that's fearful for those who don't think they can compete. They need barriers, hurdles and tollbooths to try to keep people from leaving. It's short term thinking.

Winer blames venture capitalists for this line of thinking:

I think the VCs do a disservice to young technologists. When I was young, I would have said no thanks to lock-in. I'm not going to be so dishonest as to create tools that offer users no choice. I want to win because my stuff is deep and powerful and performs fantastically and has the features users want. Why? I chose my profession because I love what I do. There are lots of ways to make money. I'm not looking for scams and shortcuts.

To be fair, I don't think all venture capitalists push for lock-in. There are many who do, but there are also many who recognize the value of openness and what it means for the long term and building truly sustainable businesses.

We'll see what happens. The long term is a bitch, and it has a tendency to plow under get-rich-quick schemes and I know you think it's idealistic but evolution only builds on open formats and protocols. That's how technology layers. It's true some patents hold, and some lock-in gets built on. Look at PDF for example. But there's a reason HTML took us places PDF never could. The ability of anyone to do anything they wanted to, without having their API key revoked. That's a big enabler of creativity, to use terminology VCs understand.

To some extent, I think this goes back to the pernicious myth of the "sustainable competitive advantage." This is a line you hear all too often from venture capitalists, and as I've said for over a decade, it's misleading in the extreme. Really successful businesses have a series of fleeting competitive advantages. The idea of a "sustainable competitive advantage" is a recipe for stagnation and resting on your laurels rather than ongoing innovation. Recognizing that a competitive advantage is always fleeting and competitors are always working hard to catch up is a recipe for continuous innovation and improvement.

It's the same thing with lock-in vs. openness. Building for lock-in leads to stagnation and resting on one's laurels. You got them in, and then you just look to set up tollbooths. Building on top of openness allows you to continue to innovate and to better serve the people who love your services and it keeps them there because they're happy, not because it's too difficult to leave. Proprietary solutions and lock-in can and do work in the short term, but it's a dangerous long-term solution that often leads to less innovation. Building on openness creates greater opportunity, greater innovation and better overall solutions.

Filed Under: dave winer, innovation, lockin, openness, proprietary

When Judging Antitrust Claims Against Google, Look At Lock-In, Not Network Effects

from the low-barriers-to-entry dept

Bill Snyder has an article calling Google "Microsoft's evil twin" because if it completes its merger with Yahoo it will have 90 percent of the advertising market and will be able to jack up the price of online ads. Snyder cites the concept of "network effects" and suggests that Google's market share advantage will "weaken of Microsoft's e-commerce infrastructure will further discourage competition and stifle innovation." This argument is confused. Almost every business enjoys "network effects." Wal-Mart, for example, is able to use its large base of customers to extract lower prices from suppliers, and is then able to use its lower prices to attract more customers. That's a network effect, but it's not a problem. What regulators have traditionally been worried about is not "network effects" in and of themselves, but network effects combined with technological lock-in.

In the Microsoft antitrust case, for example, the "network effects" argument was that various vendors had invested billions of dollars in research and development on technologies surrounding the Windows platform, and that these investments created an almost insurmountable barrier to entry for new operating system vendors: the creator of a new OS would have to persuade hundreds of companies to spend billions of dollars re-designing their products for a new platform. In contrast, the switching costs in the advertising market are extremely low. A small website owner selling inventory on one advertising network one week can easily switch to another the next. Larger sites might take a little longer but it's still not a large investment. Switching costs are even lower for advertisers, who can advertise on multiple networks simultaneously and shift their allocations on a daily basis.

There are a ton of small advertising networks focusing on niche advertising markets. Without the risk of barriers to entry due to lock-in, there just isn't much reason to worry about Google's large market share. If advertisers and website operators become frustrated with Google's advertising network, they can and will switch to another one. And Google, knowing how low the switching costs are, will still have plenty of incentive to treat its customers well.

Filed Under: antitrust, lockin, network effects
Companies: google, microsoft, yahoo