Technology Ecosystems – Good for Profits, Bad for Consumers

In 1992 Nintendo won a lawsuit against Atari and was able to lock-out third-party software vendors from providing games for its gaming systems unless they purchased a key (license). Since then the Holy Grail of gaming, smartphone and now computer system companies was to bring to market systems where they had control of every third-party device and program for that systems. By control, I mean, they get paid an upfront licensing fee, a per-unit sold payment or both.

The market has shifted to the point where all of the available gaming consoles operate that way. Today, if you buy an Xbox 360, Sony PS3, Sony PSP, Nintendo Wii, etc. you’re only going to be able to purchase software and hardware from licensed developers.

Compelling customers to purchase all products and services related to the base product from the original manufacturer is not unique to the computing industry. Through various means everyone from razor manufacturers to auto makers utilize the practice to varying degrees. As companies have discovered they can lock out competition for those add-on sales through technology and the courts it has grown more and more prevalent.

At times the consumer may benefit, at least initially, from this practice. Many manufacturers will price the base item lower than they normally would. Of course, they expect to make more money once the purchaser begins making additional purchases.

In addition, there are some that will argue that the original manufacturer is also the best possible entity for checking add-on products for stability and compatibility. That’s potentially true if that’s really being done. Unfortunately, there’s more than enough evidence to indicate that there really isn’t a lot of stability testing going on before items are released.

So, let’s talk about the downsides; Recently, Sony’s ineptitude at standard network security highlighted a huge issue. If the only place you can purchase software or receive necessary services goes down for any reason the device you have may become little more than a paper weight. What happens to iOS customers if Apple’s App Store or iTunes is brought down for any extended period?

Many of Sony’s PlayStation Network customers recently went without online play for weeks after Sony was unable or unwilling to secure its network. Many of Sony’s customers were angry about the outage and Sony’s lack of care with their personal information; some even brought a class-action lawsuit.

Well, if you can’t hire quality systems security professionals the next best thing is to hire good lawyers. Sony has decided to change their PlayStation Network License to disallow any further class action lawsuits. That type of clause isn’t all that unusual, many companies would rather have all complaints brought against them be heard by arbitrators. Let’s just say that companies don’t lose very often when the Judge owes his income to that company. But, when a company changes their terms and demands all existing customers either accept the new terms or stop using the service it becomes what we lawyer types call a contract of adhesion. That’s a contract where one side has all the bargaining power and the only choice the other side has is to agree or leave.

If you’re purchasing a piece of software and you don’t like the license terms you generally have the right to return the software. While you may be unhappy you really haven’t been hurt financially. But, can that be said for someone who has invested hundreds of dollars in a PlayStation system? If you don’t agree to Sony’s new rules you’re now unable to participate in the service that very well may have been the reason you purchased the system and because the system is closed there’s no other place to procure those types of services.

Okay, so that doesn’t bother you. There are too many class action lawsuits and the network outage wasn’t Sony’s fault anyway…how should they have known there were hackers out there? Let’s walk down the path of closed systems a bit further. As I wrote earlier the primary reason for these types of systems is to increase profits to the company. One of the ways a company makes money is by extending the sales life of products.

During the 1990s Microsoft was found to have acted in an anti-competitive way towards several of its competitors most notably a web browser company called Netscape. Microsoft allegedly engaged in unfair technical hurdles, bundling and sales tactics to slow and block Netscape (and others) from selling their products meant to run on Windows. With a closed system it becomes much easier. If a company comes up with the next big thing to run on your system you either delay approval of the technology until your competing product is improved or don’t approve it at all. They can also force companies to remove features from their product to make them less desirable (Apple recently forced all eBook apps to remove the built-in links to their book stores).

Finally, the tin-hat crowd out there claims an even bigger risk. Corporations can use their control over the system to censor apps and content they find objectionable or promote content they believe to be in their best interest. Few would complain if the capability is used to block child pornography, but what if it is utilized to promote a political agenda that’s favorable to the corporation? Or censor something they find to be unfavorable (Apple recently removed an App that highlighted serious problems with one of their manufacturing partners, Foxconn Technology Group).

The market leader in smartphone OS is currently Google’s Android which is an open system. Google does provide its own market, but competitive stores are also available, including one by Amazon. It’s also relatively easy to install apps from other sources (side loading). Unfortunately, Google really doesn’t have a competitive answer to MacOS or Windows. Chrome OS is available, but the early versions leave much to be desired. Google will have to find a way to provide a platform that works well throughout the computing spectrum or find itself forced out of the operating system market.

I like choice. I like being able to buy my software from a wide variety of vendors. I like that a couple of people working in their garage can still come up with a revolutionary piece of software and be able to distribute it without the current market leader having the right of review and refusal. I believe things are headed in the wrong direction for the consumer and I hope others begin to see the problems we’re facing and make smart choices going forward.