Tuesday, July 14, 2009

A little competition never hurt anyone

Robert Cringely had a strange editorial in the NY Times last week -- strange because its central thesis seemed to disregard 400 years of economic thought. Referring to the recent competition between Microsoft and Google, Cringely writes:
"This is all heady stuff and good for lots of press, but in the end none of this is likely to make a real difference for either company or, indeed, for consumers. It’s just noise — a form of mutually assured destruction intended to keep each company in check."
According to Cringely, competition between Microsoft and Google is more about posturing --Microsoft showing that it can compete in the search engine market and Google showing it can compete in the operating system market--than about innovation.

This begs the question, 'what's the difference?' Modern economics is largely founded on the idea that competition improves social welfare. So we should expect that Microsoft's new search engine Bing will push Google to make its search engine better and Google's Chrome OS should push Microsoft to make Windows better.

Of course, that's just theory. What does the empirical evidence say? According to the Atlantic Monthly, we're already seeing the fruits of competition:
"...Microsoft is hoping to launch a cheap, online version of its Office suite that doesn't include all the features of the paid-for version, to keep companies buying that product. But the company still claims that its software will provide "fuller service" than Google Apps, the free suite of online applications with about 15 million users. In short, Microsoft is trying to thread the needle here by creating a free online Office version with enough features to displace Google Docs, but not enough features to encourage companies to give up their lucrative Office purchases. That strikes me as a pretty significant challenge."
I seriously doubt that Microsoft the monopolist would launch an online version of its Office software; Microsoft the competitor, on the other hand, feels the need to answer Google's challenge. What will Google do to counter Microsoft? We consumers can only wait excitedly for the next innovation out of Mountain View, CA.

The point is simple: competition is good, monopoly is bad. If Microsoft had no competition, then they'd still be selling copies of Windows Vista, rather than working feverishly on Windows 7 -- and that's good for all of us.

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