Cord Blomquist

Let 1000 Walled Gardens Bloom

On a note related to Jerry’s post on “L’iPhone” I’d like to point out Thomas Hazlett’s “How the ‘walled garden’ promotes innovation” in the September 26 Financial Times. The piece discusses the virtues of closed and controlled technological ecosystems and how the “walled garden” can often be a prosperous and vibrant one. Best paragraph from the piece:

Unbundling phones from networks is suggested as a policy fix in the US. European phones, working with different Sim cards across carriers and borders, are the model. Innovation in the European Union is said to flourish. But the iPhone came first to the US, as did the BlackBerry and advanced broadband networks using CDMA data formats. That is not surprising given that US networks are afforded wide latitude in designing their systems. Licenses in the EU mandate a GSM standard. What is recommended as “open” in fact deprives customers of a most basic cellular choice: technology.

Of course the real closed vs. open debate is whether we want an open economy. Open, that is, to varying business models–rather than one that is closed to any service or product that technophiles might describe with the now-curse-words “proprietary” or “closed source.” The techno-intelligentsia may value the notion of taking a phone from network to network, or being able to install Skype on anything with processor, but it turns out that most people couldn’t care less. Ultimately that’s what matters. The systems that are adopted shouldn’t be chosen by uber-geeks and regulators, but by every-day consumers.

October 9, 2007 | Comments |

Viewing 8 Comments

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    Cord, I think you're conflating two very different issues. One is whether, as a policy matter, the government should mandate open standards. I agree with you that, generally speaking, the answer is no. But it's a separate question whether, as a technical matter, open or proprietary systems tend to be better. There's a good reason that so many technophiles consider "proprietary" a curse word: in the long run, closed platforms tend to be less innovative than open ones.

    You mention that most users don't care, but I would submit that's because most users don't know what they're talking about. If you have no idea how the technology works, of course you're not going to see any difference between open and closed systems. This is akin to saying that since most drivers never spend time under the hood of their cars, any engine is as good as any other. By definition, technophiles have more information, which is precisely why it makes sense to give more weight to their opinions.

    Now, obviously not every open technology out-performs every closed technology. Technology is complicated and a lot of different factors affect how well it works. But all else being equal, an open platform is going to out-perform a closed platform for the same reasons that a free market out-performs a centrally planned one.
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    Regular users often pick up policy preferences from the "techno-intelligentsia" over time. Today's conventional wisdom on email spam, for example, is the same extremist, elitist view that the Direct Marketing Association dismissed as unrepresentative when the debate first came up.

    Tim, there's a third issue, which is: should the state use its power to enforce any lock-in that vendors decide to impose?

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    Don, that's a good point, and of course the pro-freedom, anti-regulation answer is no.
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    I think there is another issue at play here. An economy that is open to all business models is more likely to be at risk of monopolistic practices which discourage innovation.

    If we allow car producers to dictate where we get gas, where we wash our cars, and what drive-throughs we are allowed to visit, innovation (not to mention customer service) will decrease rapidly in gas stations, car washes, and fast food joints, because they are not required to compete in the free market.

    By locking handsets to telecom companies, we have brought upon ourselves the lack of innovation and abhorrent customer service that we are all familiar with.

    Unless we have interoperability standards, we put ourselves at risk of trading off innovation for monopolistic practices.
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    If open platforms allow more innovation, then where is it?



    Instead of buying one of the many MP3 players compatible with Microsoft's semi-open WMA PlaysForSure DRM technology, consumers overwhelmingly choose the iPod. Microsoft will license their DRM to anyone who pays, but Apple won't let any MP3 player play iTunes songs except the iPod, and they vigorously oppose any attempt otherwise. But Apple remains at the forefront of innovation in portable music and now cell phones, even with carrier-exclusive agreements and aggressive bricking efforts.





    Apple doesn't make much profit off iTunes, but uses its music service as a vehicle for pushing iPod sales. Verizon, Sprint, and AT&T; make huge profits off proprietary content delivery networks like VCAST, and these profits are part of the billions they are spending to modernize networks. Sprint's EVDO now covers 212 million Americans. Consumers want streamlined content at the push of a button, and they're willing to pay for it.


    Proprietary platforms create incentives for innovation. Open technology means less profit potential, and therefore a smaller slice of companies' R&D; budgets.


    It's true that mobile operators' customer service is abysmal. But this isn't because we allow carrier lock-in, but rather due to the absence of real competition. The FCC's Soviet-style spectrum allocation has precluded entry into the marketplace, as frequencies in the GSM and CDMA bands are too scarce to start another national network.

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    Ryan, the iPod was a hit before the iTunes store launched, and to this day the vast majority of the content on an iPod is ripped from CDs (an open format) or downloaded off of peer-to-peer sites. The iPod is as popular as it is because it's a well-designed product with excellent integration with iTunes. Its DRM scheme had little or nothing to do with it.

    More to the point, whether a proprietary format makes for a more profitable business strategy has little or nothing to do with whether proprietary formats are technologically superior. Proprietary formats tend to be more profitable because they create consumer lock-in and thereby reduce competition. That's a reason that businesses like them, but it's certainly not a reason for consumers to prefer them!
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    Calling "technology" the most fundamental choice, one the European public has been deprived off is in my opinion wrong.



    People couldn't care less about technology. They care about use. Features. Camera phones with megapixels. They care about being able to switch providers while keeping their number and their phone. They care about being able to walk in a shop, buy a new phone and walk out of it talking on it. They care about being able to give their old phone away and not worry about whether the person getting it will be able to use it.


    So the user does care about not being in a walled garden.


    There are users who do care about technology, true. I'm one of them. These users usually hate walled gardens too.


    I've been testing the iPhone for the last couple of days now. As I'm in Europe it's a hacked one, so I have to be carefully that I don't accidentally update the firmware.


    The iPhone has a very nice user interface. But I miss not having 3G on a phone with such a great web browser. And why do I have to jump to all kind of hoops to install add on software of the kind I take for granted on four year old nokias...

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    If we accept that free markets will maximize utility, then we needn't argue about any of this. Open vs. Closed systems will be hashed out by the preferences of all consumers--geek and non-geek alike--acting in the marketplace. If Tim is right we will see an eventual triumph of open systems. But, it's not a question to be settled on a blog, it needs to be answered by the market.

    To speculate on such issues is akin to speculating on a chemical reaction rather than just introducing the two chemicals in question to each other and observing the reaction. Essentially a free market is this type of experiment. Models are invented, some open and some closed, then put to the test. The best is the one that survives. Expert opinions don't matter much in the face of market reality.

    What we should really be talking about is Ryan's point. Is there a real market in wireless phones? No, but that's the FCC's fault. The market is constrained by policies laid out in the 30s and barely modified since. Auctions are a new reform, but they don't make for a market. Use restrictions, government agency hogging of spectrum, and the fact that spectrum cannot be traded are all barriers to anything near a market forming in the wireless industry.

    DRM is yet another issue in the wireless industry. Is DRM fun? Not for me, but I think it's fine if companies try to use it. Should the federal government raid the homes of those hacking iPods? Again, no.

    So, Openness mandates should be refused because the market can decide if closed or open systems are superior. There is some reason to think closed systems might be good, but again, the market is the ultimate arbiter of this. And finally, we need a real market in wireless, not the pseudo-market, soviet-style central allocation that exists today.

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