RSS feedForgive me for straying a bit from the usual very stock investing centric topics on this site and spending a bit more time thinking about the proposed Microsoft-Yahoo merger. (Or, possibly the rekindled Yahoo/Google partnership.) As a Google shareholder, web development enthusiast, and an engineering student, any proposed shakeup of the Internet is very interesting to me. And, it should be to you too! The internet advertising industry could grow to over $80 billion a year within the next few years. Content networks are already increasingly net-driven with traditional media players scrambling to embrace and monetize internet delivery. With Google Docs and Spreadsheets as well as Yahoo’s recent purchase of Zimbra, it’s only a matter of time before software follows suit. It’s no wonder that Microsoft is desperately seeking not only to become relevant in the internet sphere as it represents a paradigm shift which could well undermine its dominance in the software industry.
If Googlers (and most other smart and tech savvy people) were to have their way, we would all be switching to web-enabled open source software. Documents and files would be shared not via proprietary file types but through established standards which allow for content to be distributed freely and easily. The internet would be a market lead by competitive innovation where the best ideas are those which are accepted and spread. Not a marketplace lead by a market leader who’s business strategy is to capture users through proprietary software and leverage such reliance in other markets. A prime example would be that of the rise of Internet Explorer. If one remembers, long before the days of the internet being ubiquitous, a startup called Netscape owned dominance of the internet browser market. Netscape embraced open sourcing and, though it would lose the browser war, gave birth to Mozilla. Microsoft, on the other hand, used its operating system to push Internet Explorer on its customers. While Microsoft did adhere to some W3C standards, Microsoft also pushed its own standards - JScript, proprietary FrontPage rendering, and non-standard CSS stylings. They started a features war which eventually pushed Netscape out of the way and forced many designers to choose which browser to design for. Remember when all websites came with a tag reading “Best viewed with Internet Explorer” or “Best viewed with Netscape Navigator”?
As investors, we can’t fault Microsoft for these strategic choices. Competitively, you always want to create consumer reliance through high switching costs. The best way to do so is to become the standards setter and that is just how Microsoft operates. Even now, open standards for documents and spreadsheets struggle to gain traction. The Office “.doc” and “.xls” must be supported by anyone who wants to attempt to assail the Microsoft Office software fortress. In a purely strategic sense, Microsoft has executed its competitive strategy better than most any company in recent memory has. And, as investors, we should not harbor animosity towards these decisions, but instead laud such shrewd gamesmanship and jump on board with our money.
But, as consumers, Microsoft is an entity to be feared. Captive users and anti-competitive behavior lead not to innovation and better products, but instead to things like Windows Vista and the MyDoom virus. It leads to a $150 price tag for a student office software package when even more robust packages can come for free (OpenOffice) or for just $65 (StarOffice).
Is it possible to combine the ideal of a free and open internet with that of a for-profit business? Thus far, Google has done it. And, maybe it’s too early to say that Google won’t fall to the temptation of taking their users prisoner and trying to exert their influence, but, thus far, Google has always embraced open standards, fought for open access to the new wireless spectrum, and give away many of its innovative new products. Despite this, they continue to make money hand over fist.
In the first Internet boom, the “new paradigm” was an investing paradigm. It was the idea that a company does not need immediate profits to have value (or even a route to profitability). Sky high valuations could be given despite little to no financial strength as new metrics for “eyeballs” - hits, impressions, click-thru-rate, etc. - took precedence. While this paradigm was short lived, the current Internet boom proposes to us yet another new paradigm, one which will hopefully last the test of time, and that is the paradigm that openness and innovation breed profitability success and not necessarily corporate maneuvering and anti-competitive strategy.
Hopefully, we the first generation that is truly net-enabled will embrace this notion and do our part. I’m not telling you to go out there and use nothing but Google products from now on. To tell you the truth, I find that Docs and Spreadsheets leave a lot to be asked. Yahoo! probably offers better homepage and portal services. Basecamp is my collaboration software of choice (not some makeshift combination of Google products). And, fortunately or unfortunately, Microsoft Office 2007 is actually a very impressive Office Suite. What I do believe is that we should reward those with the best products with an investment of our time and patronage. Don’t be afraid to switch to a new instant messaging system or try a new Office Suite just because some company is trying to make it difficult. Embrace open source and standards based computing. That ought to be the future of the internet.
