WE ARE IN THE MIDST OF A COLD WAR BETWEEN THE LARGEST TECHNOLOGY COMPANIES IN THE INDUSTRY.
It’s a war for ecosystem territory, in which companies are vying to keep users within their own lands and making small but strategically important incursions on the peripheries of other players. The ecosystem war between Apple, Microsoft, Google, and Facebook has largely become a war of attrition with limited asymmetric vulnerabilities. With a few exceptions, these entities have engaged in standard strategies like lock-in and made some limited encroachments into each others' territory. However, the relatively "cool" nature of the war should not blind one to the possibilities of more aggressive tactics.
Both the large and small players have weapons in their arsenal that have not yet been deployed — in most cases for good reason, given the high potential for blowback and collateral damage. Nevertheless, there are scenarios in which the ecosystem cold war could erupt into something more aggressive. In this brief, we’ll take a look at some of the strategic assets and how they could potentially be deployed as offensive measures.
Skype is one of the least appreciated weapons in Microsoft's arsenal
In terms of ecosystem strengths, Skype is one of the least appreciated weapons in Microsoft's arsenal. While it's obvious that products such as Office, Xbox, and of course Windows represent larger hegemonies than Skype, it still represents a beachhead on other platforms. Available on Mac, Linux, Android, iOS, various televisions and set-top boxes, and even legacy systems like Symbian and webOS, Skype has the potential to be a central part not just of Microsoft's ecosystem, but for the internet at large.
Should Microsoft decide that it would be best served by making Skype available exclusively on its own products, it would represent a significant shift in strategy and could send shockwaves throughout the rest of the industry. Although such a move may drive some movement towards Microsoft products in the short term, it's more likely that consumers would still make their purchasing decisions based on other factors and then contend with the lack of Skype afterwards. Microsoft's weak position in the smartphone space would compound the shift away from Skype as a primary communication tool if it were Microsoft-exclusive.
We believe that a Skype blockade would be a counterproductive move that would limit Skype's large and growing popularity as a communication service. In fact, Skype's greatest strength right now as compared to other VOIP services lies not so much in its technical superiority as in its ubiquity. The net result of a Skype blockade would be a lessening of Skype's unique advantage of ubiquity and a mad scramble for a cross-platform replacement. In the event of such a scenario, expect the VOIP and message space to look much more like the fragmented and fractured battle to replace SMS.
It would take some time — perhaps years — for a dominant, cross-platform replacement to emerge and the battle would be incredibly fierce. The number of interested players who would want to try to take up Skype’s banner is shocking: large software players like Google and Apple, small startups, and even wireless carriers would all likely rush in, guns blazing.
Luckily, since completing its purchase of Skype in October of 2011, Microsoft has not given any indication that it intends to remove or reduce access to the service for other platforms. However, it is possible that Microsoft could engage in softer tactics. By offering a premium experience on Windows products and not working to keep other platforms up to date, Microsoft could potentially lead core users to consider switching to Windows products. Skype is tightly integrated into Windows 8 and Windows Phone 8 and will soon replace Windows Live Messenger, already offering a vastly superior experience than what’s available on iOS and Mac.
Offering a full version of Office for other platforms would undercut Microsoft's Windows strategy
One of Microsoft's greatest ecosystem assets is its Office suite of applications, to date only available on Windows and Mac. As we have seen with the launch of the Surface tablet and with the marketing for Windows Phone 8, access to a "real" version of Office that can read and edit documents in their original format with full fidelity is a significant advantage for the company.
However, we know that the company has been preparing versions of Office for both iOS and Android for some time now, with a likely release date sometime in 2013. Microsoft itself essentially confirmed these reports by stating that "Office will work across Windows Phone, iOS and Android." Although there have been third party apps that can edit Office documents on these and other platform for some time, a first-party title would quickly become dominant. Microsoft has released multiple version of Office for Mac, but recently the Mac versions of Office have failed to keep pace with development of the Windows version.
Office is now more than just editing Word, Excel, and Powerpoint. Microsoft's cloud solutions like SkyDrive and Sharepoint offer robust collaboration tools that could overtake other cloud storage solutions like Dropbox and iCloud on other platforms. Should Microsoft gain significant traction with Office across multiple platforms, it could lead to a deeper Microsoft ecosystem buy-in amongst consumers.
Microsoft’s historical reticence to release official Office apps for iOS and Android gives us a hint as to the risk factors for Microsoft when it does release the product in 2013. Obviously the biggest concern is that there's a virtuous cycle between Office and Windows products. No doubt Microsoft wants to ensure that as many customers as possible opt for its complete Windows + Office solutions, and so offering a full version of Office for other platforms would undercut its Windows strategy.
Microsoft has dabbled in offering its software products on other platforms before, but never with something as important as Office. Assuming that losses to Windows and Windows Phone purchases could be minimized, the strategy does offer some potential advantages for the company. The first and most obvious would be expanded revenue from customers that would have otherwise spent money on competing Office solutions — money that Microsoft has essentially left on the table. These other Office solutions — including Apple's own office suite, QuickOffice, and more — would likely see a significant decline in usage once they have to compete directly with Microsoft's official solution.
A halo effect is also a distinct possibility. Offering a product that is good on iOS but better on Windows may have the potential to lead to switchers. Whether the balance between protecting Windows and adding additional Office revenue will tip in Microsoft's favor by 2013 is academic at this point — it's coming.
ActiveSync’s deep and essential infrastructure theoretically gives Microsoft serious leverage
Quietly and with little fanfare, Microsoft's Exchange ActiveSync has become the defacto way to push email to smartphones. RIM had an early advantage in the push email business, but Microsoft's solution rapidly overtook it and is the way most businesses deliver email to phones. Even RIM utilizes ActiveSync now as a part of its own proprietary email system. While a lot of consumer-grade email systems like Yahoo and cable-company-provided systems languish in a POP and IMAP world, ActiveSync is how serious email delivery happens and the competition isn't even close.
Although ActiveSync plays central role in pushing email to smartphones, that doesn’t mean it’s unassailable. Google could disable Exchange ActiveSync-based push email for its Gmail service. In fact, Google's main help article for syncing iOS no longer directly links to its set up instructions for Exchange for Gmail. Similarly, it points iOS users to CalDAV for Calendar sync and CardDAV for Contacts sync. Support for Exchange ActiveSync for all of these features is still there for regular users and Google Apps users, but Google may be taking steps to deprecate ActiveSync for smartphone users.
Although Google would be able to continue to interoperate with the native clients on non-Android platforms, that experience would likely degrade further. Setup for Exchange is relatively unified and straightforward compared to the more standards-based solutions that Google is now promoting, which could theoretically cause more stratification in the market — Google users would be pushed to Android more, iOS users pushed to Apple's solutions, Outlook users to Windows Phone, etc.
From Microsoft’s perspective, ActiveSync’s deep and essential infrastructure theoretically gives the company serious leverage, but in practice it's very unlikely that Microsoft would do anything to significantly alter the current state of things. Microsoft would not be likely to risk the deep inroads it has in enterprise by limiting access to ActiveSync for other platforms. The calculus could theoretically change at some point the future should Windows Phone 8 begin to gain serious traction — the company does offer more robust enterprise device management tools for Windows Phone 8 than it does for other devices.
ActiveSync is a Microsoft product, but it has lately represented one of the best tools for users to choose their device separately from choosing their email, contacts, and calendar service. If either Google or Microsoft were to take steps that lessened its influence, we should expect deeper ecosystem lock-in.
BlackBerry Messenger could be irrelevant, and soon
RIM, the once-dominant smartphone company behind BlackBerry, is preparing for a re-launch with a new OS to fend off an accelerated decline into irrelevance. Betting the company on BlackBerry 10 wasn't always the only plan, however. Last April, after co-CEO Jim Balsillie left RIM, the rumor was that the executive was planning a "radical reinvention" of the company that included offering BlackBerry Messenger on other platforms.
BBM is one of the "stickiest" parts of RIM's ecosystem, combining free messaging and a kind of social network into a service that once attracted both executives and teens to the platform. The company is under fire on the messaging front from the likes of iMessage and WhatsApp and on the social networking front by Facebook and Twitter. BBM could be irrelevant, and soon. Facebook, in particular, is working off the exact same social + messaging playbook (no pun intended) that RIM pioneered with BBM.
That may not have been the case had RIM gone through with Balsillie's reported plan to offer the service on other platforms — but CEO Thorsten Heins clearly felt that it would have undercut BB10s' chances. Heins won't rule it out as a possibility at some point in the future, but for the time being it's not something we expect.
Had RIM gone through with the plan earlier, it's likely that it could have owned the messaging space, full stop. There was a time when BBM had real social cache and a large cadre of ex-users who were still pining for it — but both are on the decline. If RIM is considering taking BBM cross-platform, the most likely scenario involves establishing BB10 as much as possible first. There are also significant engineering hurdles: for a cross-platform BBM product to be successful, it must be as reliable, instant, and compelling on iOS, Android, and BlackBerry. That's a tall order for a company with no history of developing apps for other platforms, not to mention the difficulties of competing directly with other messaging apps.
A cross-platform BBM would mostly likely come too late to make a huge splash relative to other services and would siphon users away from BlackBerry 10. Of course, that last concern could be academic depending on how the launch goes. If there are no users to siphon away from BB10, Balsillie's RIM-as-services-company plan could be taken down from its dusty shelf.
Facebook could know just as much about you as Google does
As we reported last week, Facebook is aggressively working to embed itself in the iOS and Android app ecosystem. Should the company be successful, it could have deeper knowledge of apps users than even Apple and Google. The complex ties between Facebook, the other large ecosystem giants, users, and even the open internet make the repercussions of a ubiquitous Facebook app back-end difficult to tease out.
From Facebook's perspective, the obvious answer is that it will use its position to further cement its central place on the internet — driving ever more content into its own ecosystem. It could also find ways to siphon money away from Google and Apple should it ever decide to add mobile advertising to the suite of login, social, and sharing features that it currently offers to users.
For Apple, Google, Microsoft, and others, Facebook's potential to insert itself into their app ecosystems just as it did with the larger web presents a more difficult problem. Apple and Microsoft have each built Facebook into their own OS offerings, and it's difficult to remove a feature once it's been added. Granted, the depth of the integration is mostly limited right now, but we should expect negotiations about what data is shared (and in which direction) to intensify behind the scenes.
For the time being, Facebook, Apple, and Microsoft have business models that don't overlap to a significant degree, but that's clearly not the case when it comes to Google. At a high level, Google+ is a reaction to Facebook's ever-increasing dominance in the web (and app) space. It shouldn't surprise anybody that Android doesn't feature Facebook integration out of the box (though its openness means that Facebook can build that it itself with its app).
Among the many battlefronts between Facebook and Google, one that deserves special attention is identity. Facebook has shown that users are willing to put their identity online in ways that go well beyond simple profile pages. The Timeline is more than just a nice-looking history of posts, it's the most public manifestation of the possibility that Facebook could know just as much about you as Google does. That's a threat to Google's advertising business, but it also gives Facebook the ability to bring unique capabilities to any business it may decide to enter.
Trying to guess Facebook's next move is difficult because it is so ubiquitous. Once Facebook is everywhere, it could attack — or be attacked — anywhere.
Steve Jobs famously said iTunes was "like giving someone a glass of ice water in hell."
iTunes has long been a central piece in Apple's battle to spread its influence beyond the Mac. It began life as a piece of music management software, growing to become the main element in Apple’s original "digital hub" strategy of linking the iPod up with the computer. As time progressed, the company added music purchasing, movies, television shows, and management duties for iOS devices like the iPhone and iPad.
iTunes was brought to Windows for the first time in 2003, and four years later Steve Jobs famously said it was "like giving someone a glass of ice water in hell." It was hyperbole then, perhaps, but now the software has essentially become a creaky but still serviceable battleship. For millions of iPhone users, it is the critical link between their smartphone and the computer.
There's no doubt that Apple's ecosystem still depends heavily on iTunes and its familiarity is as comforting to some as it is aggravating to those of us who have moved beyond managing MP3 files. Although Apple has introduced iCloud services that can largely replace much of what iTunes does for consumers, it will likely be some time before it goes away.
Changes are needed in iTunes, as competing products from Microsoft, Spotify, and others offer nicer user interfaces and subscription-based music. There have been persistent rumors that Apple intends to do the same with iTunes, but it's unclear exactly what is holding the company back. One very reasonable assumption is that iTunes is such a large driver of sales that music labels are leery of allowing it to change dramatically.
Should change come, the question becomes what sort of leverage does iTunes give Apple over competing products? It's not just widely used by iPhone and iPad owners, it's widely used by everybody. One possibility is that Apple could cease to maintain feature parity between Windows and Mac, perhaps by offering that rumored streaming service only on Macs and iOS devices but not on iTunes. The Mac is more likely to be considered a legitimate option for the average home Windows user than it was nine years ago, so it could drive some users to switch.
Another very real possibility is that Apple will not create a version of iTunes compatible with the new Windows 8 design language. While iTunes will still likely work on Windows 8 in the desktop mode, Windows RT users (and owners of the current model of the Surface tablet) will be left out in the cold. As users are forced to drop into the desktop mode to use iTunes, it’s hard to know whether users will blame Microsoft because there’s no iTunes in the new UI or Apple for not supporting it. If Windows RT gains widespread acceptance as a primary OS for computing, that situation will only get worse. Whatever happens, expect the relationship iPhone users have with their Windows 8 machines to be very different than what it is today.
We are the in midst of the fallout of an API bomb Twitter set off earlier this year
Finally, we need to examine an ecosystem wargame scenario that's actually playing out before our eyes. We are in the midst of the fallout of an API bomb Twitter set off earlier this year. In essence, Twitter has made the decision to limit Twitter clients that "replicate the Twitter experience." Though many developers and users feel burned by the near-radioactive fallout that followed the decision, it shouldn't have been a surprise. By tracking the entire story of Twitter's API, you can see the progression of escalation from early hints in January to near-threats in July to the August's new guidelines for developers. Twitter's new business is Twitter, a walled garden that looks more like Facebook than the open web.
The question is whether Twitter's API bomb was a tactical strike against 3rd party clients that will leave the company itself stronger as a new kind of media business, or if the collateral damage from bad PR and disillusioned users will seriously hurt the company as a whole and leave space for a competitor to swoop in. The fact that third-party client apps and developers were the source of so much of the early innovation on Twitter adds to the problem.
We've already seen serious problems as a result of Twitter's new policies. The highest-profile Twitter app for Windows 8, Tweetro, was "crippled" by Twitter's new user limit, while other apps like Tweetbot have been forced to set high prices, limiting their use to only the most hardcore users. Developers of straight third-party Twitter clients are operating in a no-man's land, trying to survive despite Twitter's stringent limitations on how many users they can have. They're "born to die", and there's no guarantee that even the small space in which they are operating will remain for long.
The radioactive zone inhabited by third-party clients and the users who love them may not be all that large, however, relative to Twitter's growing territory. Record-breaking numbers from the presidential election and a relatively successful (though marred by a minor scandal) partnership with NBC for the Olympics are both signs that Twitter's map is much larger than it used to be. The most-adopted alternative to date, App.net, is nowhere near the size of Twitter and most of its users are still on Twitter as well.
Twitter's API bomb leaves space only for third-party clients that feed information into Twitter, but to date that has translated into a very limited set of consumer-facing apps. While business-to-business apps and Klout may be successful in their own right, they're hardly the robust and high-profile apps most people think of when they imagine an app ecosystem. Twitter has a good chance of remaining a dominant force, but there will always be a radioactive crater where its capital once was.
Illustrations by James Chae
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