In the recent lawsuit alleging its restricting the iPod to music purchased only through its iTunes store, Apple has something in common with the Bell Telephone Company and IBM, not to mention with Microsoft. Bell Telephone, IBM, and Microsoft once dominated their respective markets, producing well-thought-of products that had no competition. Creating circumstances that promoted no competition was bad for other companies, but was good for the consumer. All these companies controlled their product lines very carefully – until the federal government brought or entertained antitrust suits against them.
Frankly, litigation against closed-source companies hinders efficiency for the consumer, but there is a bright side too. The classic situation was that of the Bell Telephone Company, later called AT&T (Atlantic Telegraph & Telephone), but everyone called it Ma Bell. It was “the” telephone company in the United States. It owned the wires on the poles and underground, it wired your home, it gave you the telephone, and it provided repair service. All very efficient, and it all came with a hefty monthly bill. Repair was built into your monthly bill, so when you had a problem, you called the repair service and the repairman did everything necessary to restore your service for no extra charge. You did nothing; you rented your equipment, and it was taken care of by experts who knew Ma Bell’s equipment.
And then the federal government broke up AT&T. It was a long time coming: The telephone was invented in 1876 and AT&T built its network; over 100 years later, in 1981, the company was forced to break up. Baby Bells were created, and AT&T was left with long-distance service. From then on, you bought your own phone and strung your own internal phone wire. A repair call solved the problem on the pole outside or underground, but if the problem was in your wiring or phone, it was your problem to solve.
Since 1981, AT&T and the Baby Bells, as the various spinoffs were known informally, had many other changes, so much so that AT&T and Verizon, the latest name for the Baby Bells, look very different from each other and act less like they’re from the same family of product, and more so treat one another as competitors.
IBM was another company that had great success controlling a market — in its case, computers — with a rental arrangement. That arrangement began before computers, with the device that put IBM on the corporate map: the punch card reader. IBM had a bevy of salesmen and repairmen to service the machines, which Thomas Watson Jr., the son of IBM’s founder and its second CEO, said broke down frequently. All the user had to do for repair was call IBM. IBM Business boomed for the company, and as a result both customers and company employees were very happy.
And then the U.S. Justice Department intervened, in 1935, 1952, and 1969. In 1935, nothing came of the intervention, and in 1952, the government didn’t want to break up IBM; it just wanted IBM to allow competition by licensing its punch card technology. In 1969, the Justice Department again brought suit, and the case took 12 years to resolve, reaching an out-of-court settlement. The latter case is probably the reason an “IBM PC,” created in 1981 just when the 1969 lawsuit ended, isn’t even made by IBM today.
The modern reason is called “open source” – anybody can license IBM technology and make something “IBM compatible.” But “open source” isn’t limited to IBM technology. Linux is famously open source and is the basis of the Apple OS (which means “operating system”). But Apple, once it took from Linux what it needed to create the basis for its own computer, became “closed source”: only Apple and its partners made components for an Apple computer. Apple became known as “one of the most closed companies in the world.”
But things are turning once again. Apple is beginning to embrace open source. As Alex Williams quotes the Linux Foundation’s Jim Zemlin in an Internet blog, “everything is becoming a service. Those services are moving to the forefront of the enterprise and they are built on open source.
“So if you are going to master software you must master open source. You can’t do it otherwise. There is no way to succeed in a services world without it.”
Even Microsoft, which Williams points out “once equated open source with communism,” has joined in supporting Linux. Microsoft was once known for devouring all software companies in its path. When the World Wide Web began, the leading browser was Netscape. That is, until Microsoft Explorer came along. And then, in a similar pattern to AT&T and IBM, the federal government brought an antitrust suit, threatening the breakup of a company that was once so dominant that it was said of it “We are Microsoft. Resistance is futile.”
The irony is that the telephone company and IBM succeeded in a services world by renting services. That is, until the federal government intervened. Users got reliable service, which, make no mistake about it, came at a hefty price. It was fairly simple service by today’s standards, and maybe there was little incentive for innovation. For instance, Bell Laboratories, the research arm of AT&T, invented dual-tone multifrequency dialing years before it was implemented. Pulse dialing worked fine for making truly “dial-up” telephone calls (with an actual dial), and DTMF was relegated to as curiosity called the Princess phone, which a family bought for a teenage daughter. But after 1981, DTMF became standard in telephone service, opening up a new world of telephone use.
So you can praise monopoly for giving a user short-term successful service, but it hinders creativity and innovation in the long run
Sources:
Thomas J. Watson Jr., Father, Son & Co.: My Life at IBM and Beyond (Bantam Books, New York, 1990).
Open source vs. closed source (http://www.informationweek.com/software/information-management/the-opposite-of-open-source/d/d-id/1082345?)
The Internet of Very Different Things http://www.sys-con.com/node/3206687
Apple’s struggle with open source: http://techcrunch.com/2012/08/29/the-state-of-linux-how-even-apple-is-going-open-source/
Microsoft once equated open source with communism http://techcrunch.com/2012/08/29/the-state-of-linux-how-even-apple-is-going-open-source/
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