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Friday, July 29, 2005

Closed Standards, Open Standards, Ecosystems & Innovation

The ecosystem outpowering the individual supercharged pioneer in growing the market is an established trend in several industries. Bob Cringley brought the point in a different way when he wrote, Why No Single Entity is Capable of Dictating the Future. John J. Sviokla of Diamondcluster Consulting writes, Apple will soon lose its hold on the marketplace for both digital-audio players and digital songs. He sees that the iPod's features are being copied by Samsung, Dell, iRiver, Sony, and others. Competitors are adding tuners, cameras, gaming, and more to devices. They're rolling out a host of new music services. Meanwhile, the iPod has not changed much since its debut four years ago - and Apple's latest iteration, the iPod shuffle, has met with limited success. The competitors will win as they have created an economic ecosystem that powers innovation. The iPod, like most Apple products, is decidedly "closed." Your Yahoo music subscription won't work with iPod because Apple does not support Microsoft's WMA file format. More important, no one can improve on an iPod except Apple.

An ecosystem beats a product because its collective of competitors can explore and invest in many more ideas than any single company can muster. In an ecosystem, all the players share some key components. Devices that can read the Windows version of digital music (WMA) all share the song base, and almost all can use subscription services such as Napster and Yahoo's Music Unlimited. Many non-Apple devices, by contrast, can't use iTunes, just as iPods don't work with WMA. This closed system made sense for the iPod's launch phase, but once the music ecosystem has the capacity for far more experimentation - even Apple, a profoundly innovative company, won't be able to keep pace. Historically, open standards have enriched customers and fueled productivity. The Internet, with its open set of tools for communication and presentation, provides standard parts for knowledge work. The Internet ecosystem enabled massive value creation, both for incumbents like Microsoft and IBM and for new entrants like Cisco, Amazon, and eBay. But It was the ecosystem - not the market leaders - that radically expanded the market. He concludes, "Apple should be opening up the iPod and licensing iTunes to others so they can build out the ecosystem. If it doesn't, the iPod will lose, just as the brilliant Macintosh computer ceded market leadership years ago .The iPod and iTunes, like any closed system, can give Apple outsized profits - but only for a time and points out -Ultimately, no one company can out-innovate the market".I agree with him -only business models can be unique helping in market leadership but product domination through closed standards will never help a company to be at the top position for long. I am saying this despite being an ardent fan of Apple & Apple iPod.

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Sadagopan's Weblog on Emerging Technologies, Trends,Thoughts, Ideas & Cyberworld
"All views expressed are my personal views are not related in any way to my employer"