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.