Paul Krugman's got a couple of posts up that together point out the inevitability of the eventual decline of both Apple Apple and Microsoft Microsoft. One's already happening of course, the other is still to come. What's particularly interesting about Krugman's views here is not that he's a New York Times columnist, nor even that he's a Nobel Laureate economist (and forgive me but I rate him very highly as that second and not very much as that first) but that that Nobel was awarded for his findings in exactly the area where Microsoft and Apple operate, what has allowed their success.
No, he's not particularly looked at the tech world but his research was indeed about network effects and economies of scale. And that of course is exactly what prompted Microsoft's success with Windows and then Office, those two factors, and it's what underpins Apple's with iOS these days. His point here being that most certainly, such network effects do indeed aid in the rise of a company to vast riches: but when they start to go into reverse then they bring that decline just as promptly.
The first piece is here:
Now, unlike Microsoft, Apple isn't selling an inferior product. But it's selling products that are little if any better than competitors, at premium prices. How can it do that? Again, network externalities: mainly a much deeper bench of apps, or so I'm told (I actually don't use many).
So how do the prospects for Apple's reign look compared with those of Microsoft? Let's not forget that Microsoft is actually an incredible success story — it maintained its PC lock for decades, and in fact still retains that lock today; it's just that the market is changing. My casual impression is that Apple's lock isn't nearly as secure, in part because it's relying on the loyalty of individual customers — in contrast to Microsoft, which was largely relying on the loyalty of corporate IT managers, who are inherently more conservative.
The stories are not exactly the same, of course. Marx was wrong on this, history does not repeat itself. But there are great similarities even so: the rise to prominence from those network effects followed by the inevitable decline from those lofty heights as they fade out.
There's also a second piece looking at a slightly different theory explaining the same thing. This is drawn from medieval Arab thinking:
Ibn Khaldun uses the term Asabiyyah to describe the bond of cohesion among humans in a group forming community. The bond, Asabiyyah, exists at any level of civilization, from nomadic society to states and empires. Asabiyyah is most strong in the nomadic phase, and decreases as civilization advances. As this Asabiyyah declines, another more compelling Asabiyyah may take its place; thus, civilizations rise and fall, and history describes these cycles of Asabiyyah as they play out.
The comparison here is of course between companies, not civilisations, but the same general rules are being assumed to underly both. And then back to Krugman himself:
Yep: the uncouth nerds who created Microsoft became incredibly rich, acquired couth, and lost their edge; Apple stayed edgy in part because of Steve Jobs, but also because it was a disappointment for so long. And if its plans to build a high-tech Versailles are any indication, the now super-successful Apple may be heading down the same road as its one-time nemesis.
As empires rise and fall, as civilisations do, so do companies. And for much of the same reasons too.
Just as a little bit of added fun that Ibn Khaldun that Krugman is using as a source is also the Ibn Khaldun that Art Laffer uses to back up the idea of the Laffer Curve:
The Laffer Curve, by the way, was not invented by me. For example, Ibn Khaldun, a 14th century Muslim philosopher, wrote in his work The Muqaddimah: "It should be known that at the beginning of the dynasty, taxation yields a large revenue from small assessments. At the end of the dynasty, taxation yields a small revenue from large assessments."
Even better, that observation about taxes is from the very same book that Krugman is drawing his commentary from. Now, if only we could get Krugman to take the whole of Ibn Khaldun seriously….
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