Thursday, June 11, 2009

Software Makers Choosing Between Apple, Palm, and RIM

Business Week has an article about how some software makers, given limited resources, must grapple with the difficult choice regarding whether to develop software for the iPhone, Blackberry, Palm's new smartphone - the Pre, or other devices. The situation provides a powerful example of positive and negative feedback loops. If one player achieves a dominant lead in the smartphone business, then developers will flock to build software for that platform, as they will be able to more quickly achieve a return on their investment. Laggards will be in trouble, as few developers will want to expend precious resources to create software that has limited market potential. Of course, the question becomes: How does one achieve a lead in the smartphone market? In part, one has to woo developers, so as to have enough interesting software available to persuade consumers to buy your phone. If one attracts developers, then that increases the installed base of your smartphone, which in turn attracts more developers. That's the virtuous cycle of positive feedback in action. Of course, if one does not attract sufficient developers, that shrinks the installed base of phones, which means less developers work on your platform in the future - that's the negative feedback loop in action. What determines the intensity of these feedback loops. The size of the fixed costs of software development will be a key factor. To the extent that the fixed costs of development rise, then the pressure on laggards will intensify dramatically. Software developers will not want to develop products for niche phone-makers, because they won't be able to amortize their high fixed costs effectively. Recall that this phenomenon affected Apple in the late 1980s and early 1990s, when its very small market share relative to Windows caused many software developers to choose to create products for Windows rather than Apple. The key factor was that the fixed costs of software development could not be recouped quickly given the small installed base of Apple machines relative to Windows.

1 comment:

MyKabob said...

I have no problem with the feedback loop concept you were illustrating. However, the example used raises some concerns.

"dominant lead in the smartphone business"
1) dominant lead can be measured in various ways, the magnitude of the lead is important because smartphone business and technology business in general is a fast changing business, one lead classified as 'dominant' may be 'less dominant' in a few months, or after a major event.
2)smartphone business is not a formally defined term. Therefore, the statistics from various sources based on that term might cause confusion. Also, the smartphone business overlaps with other businesses such as hand held computer, mp3 players, video camcorders, other small mobile appliances/devices, therefore, any change in those other areas might encroach on the 'dominant player' in the smartphone business (my understanding is phone plus other email/messaging/multimedia capabilities).

"Laggards will be in trouble, as few developers will want to expend precious resources to create software that has limited market potential."
3) This is debatable, because the amount of resource put into software application development on each of the mentioned platforms is different. Each requires different programming languages. In the case of the palm pre, it supports the easier and faster development cycle. Also, the palm pre applications can be developed using tools on various desktop platforms. Lastly, the palm pre can leverage the many existing web applications (front ends) enterprises have. I.e. Porting (to and from the palm pre), as well as developing is easier. Palm pre bodes well against other 'layers' such as yahoo's 'kiosk' or j2me that allows only integration within the sandbox/layer.

4) As suggested earlier, apple's lead is being challenged by new comers. One should look forward, account for forward looking events, such as any unique qualities that the new comers bring to the market, as opposed to clinging to old and lagging stats based on old events and attributes of the competitors.

"phenomenon affected Apple in the late 1980s and early 1990s"
5) The smartphone industry is not necessariliy going to repeat the development of the desktop industry. 5a) They are both computers, but there are differences such as mobility, and hardware 'accessories' or components such as gps/sensors/touchscreen, all of which affect the buyers' decision when they consider the pool of alternatives. Buyers will base their buying decision on the unique features of the whole of smartphone as a mobile platform, which includes hardware features, software, design, and network. 5b) Also since the Mac/PC world of the 80s-90s, lots of other events have happened, connectivity is more pervasuive especially on mobile devices (see RIMM's Q1F2010 Q&A also).