Standard Platform vs. Competiton – Which is better for innovation?

Mike Masnick wrote a nice article today for techdirt exploring the question:

Which is more important for innovation: A standard platform or competition?

The question is evaluated in terms of gaming systems (i.e., platforms) but the arguments for each side can easily be used for any system – for example, one OS vs. OS diversity, ATT vs many Telcos, etc.

I think Mike hits on the heart of the issue here:

… where the biggest economic contribution comes from: the platform or the applications on top of the platform. If it’s the platform, then competition makes sense. If it’s really the applications on top of the platform then it’s going to make sense for there to be a standard to let the competition occur on top of the standardized platform.

We need to understand that the platform vs. competition question is cyclical. A standard platform is great as long as it enables the business models that consumers are willing to pay (and pay a premium) for. The natural tendency is that once the platform becomes dominant – the platform maker(s) begin dictating terms, not enabling those business models. Why? because there is no profit motive in doing so.

That shift in the mindset of the platform makers inevitably drives the creation of competing platforms – again triggering platform competition. That competition will – eventually – create a market winner and dominant platform.

And so on…

Since innovation is about making money (my avatar doesn’t know how to do that) what is best for innovation is understanding the cycle, where we are in the cycle, and where best to concentrate effort and investment.

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