Windows for a new generation?

It seems that Joseph Schumpeter’s process of creative destruction is still going full throttle ahead, with Google’s announcement this week of a operating system (Chrome OS) to rival Microsoft’s dominance through Windows.

The idea behind the creative destruction process is that in a capitalist society, as monopoly positions arise behind high barriers to entry, the supernormal profits earned by these monopolies entice budding entrepreneurial firms to encroach on the market.  However, given the high barriers to entry to attack the monopoly’s position directly, the new firms must be more innovative and circumvent the market, which usually involves coming up with a tweaked, more innovative product.  In the 1980s we had IBM; Microsoft usurped it, and Apple has been trying to do the same to Microsoft (with some obvious successes such as the iPod); and it seems now that Google has decided to have a go too.

It won’t be easy given Microsoft’s 88% share of the operating system market; but this is still down on its previously touted 95% in years gone by. For a firm that managed to turn the name of its firm into common parlance and into various dictionaries (“to google”), if anyone can take on such a Herculean task, it is indeed Google.  With its use of Open-Source programming, it is able to tap many talents around the world; and with its deep pockets to rival any firm; it is able to fund extensive R&D.

It is also great to see in what is for the main part a duopolistic market, seeing fierce (non-price) competition, just as the economic theory would predict. It will be interesting to see what happens – in theory, the consumer will reap large benefits as these two giants fight it out to keep innovating and coming up with user-friendly ideas and add-ons; rather than providing consumers with a stale product (and if there’s one thing that Google knows how to do incredibly well, it is innovate; as evidenced by the plethora of extras it comes out with every few months).

However, the worst case for the consumer would be if we end up with a 2-tiered system with some of the world using Chrome and some of the world using Windows – as without inter-compatibility, we would lose many of the positives of the “network effects” of having one standard applied globally.  So ultimately consumers should want one operating system to prevail over the other.

What will be interesting, will be in the fullness of time, to see if Google does become the new Microsoft; and we start to see Competition Commission concerns about Google’s dominance and a regular fine for abuse of its dominant position.  Everyone likes a new firm taking on an old dominant force; but few think about what happens when the new firms actually become the dominant force… Watch this space!

The image below perhaps summarises the process rather nicely…

Unit 4 Macro: Focus on India - Comparative Advantage [27 Jan 2012]
Unit 4 Macro: Focus on India - World’s Cheapest Computer [26 Jan 2012]
Unit 4 Macro: Focus on India - Supply Side Issues [25 Jan 2012]
Unit 1 Micro: Can the UK Computer Games Industry Grow [24 Jan 2012]
Unit 3 Micro: 3D Printing and a Manufacturing Revolution [23 Jan 2012]
Unit 1 Micro: Nano Technology and Energy Efficiency [17 Jan 2012]
Using Infographics in the classroom [15 Jan 2012]
Unit 4 Macro: Does Manufacturing Matter? [10 Jan 2012]
Unit 2 Macro: Factors Driving Business Investment [10 Jan 2012]
2012 - Carnage on the High Street [28 Dec 2011]
Unit 3 Micro: Sub Normal Profits - BP Leaves the Solar Industry [21 Dec 2011]
Unit 3 Micro: Oligopoly and Duopoly in Bus Markets [20 Dec 2011]
Unit 2 Macro: Mobile Phones and African Economic Growth [18 Dec 2011]
Unit 4 Macro: The Rise in Self Employment [17 Dec 2011]
Unit 3 Micro: Patent Wars- A Touchy Subject for Apple [16 Dec 2011]
Unit 3 Micro: Hope Bikes - A Commitment to Excellence [30 Nov 2011]
Some Practice Interview Questions [27 Nov 2011]
Unit 3 Micro: Brand Loyalty in Mobile Phones [27 Nov 2011]
Unit 3 Micro: Patent Wars might Stifle Innovation [23 Nov 2011]
Beyond the Bike - What is the value of life in Africa? [19 Nov 2011]
Pasty Prices - Something to Chew Over [19 Nov 2011]
MON€Y PANIC$ – A Visualisation Challenge [18 Nov 2011]
Unit 2 Macro: Should the EU introduce a Tobin Tax? [14 Nov 2011]
LSE lecture: Darwin economy [13 Nov 2011]
AS Macro: The State of British Business [13 Nov 2011]
Unit1 Micro: Australia pass Carbon Tax [8 Nov 2011]
Unit 3 Micro: Quiz on Market Structures [6 Nov 2011]
Unit 4 Macro: Richard Florida on the Great Reset [5 Nov 2011]
Unit 3 Micro: Time of Use Pricing for Energy [2 Nov 2011]
Unit 2 Macro: A New £50 comes into circulation [2 Nov 2011]
Unit 3 Micro: Economies of Scale and the Kinect [31 Oct 2011]
Unit 1 Micro: Google Maps to Charge for Usage [31 Oct 2011]
Unit 3 Micro: Examples of Price Discrimination in Action [31 Oct 2011]
Unit 3 Micro: Price Discrimination in the E-Book Market [31 Oct 2011]
Unit 3 Micro: UK Executive Pay - All in it Together? [29 Oct 2011]
Unit 1 Micro: Is the Sun Dipping on Solar Subsidies? [27 Oct 2011]
Unit 1 Micro: University fees and elasticity of demand [24 Oct 2011]
Unit 1 Micro: Economists attack food price speculation [24 Oct 2011]
Unit 3 Micro: Ofcom gives stamp of approval for flexible pricing in mail [21 Oct 2011]
Unit 3 Micro: Tesco Behaving Badly - Price Anchoring [17 Oct 2011]
Keynes Prize: The Economics of Cities (3) [14 Oct 2011]
Can the “invisible hand” solve Africa’s poverty? [13 Oct 2011]
Keynes Prize: The Economics of Cities (2) [13 Oct 2011]
Keynes Prize: The Economics of Cities (1) [12 Oct 2011]
Why Is Macroeconomics Such A Mess? [11 Oct 2011]
Unit 3 Micro: Contestable Markets - Lucozade takes on Coca Cola [10 Oct 2011]
Unit 1 Micro: Waste Mountains as Above Ground Mining [6 Oct 2011]
Unit 1 Micro: Homework Assignment on Market Prices [2 Oct 2011]
Unit 3 Micro: Amazon launches the Kindle Fire [1 Oct 2011]
Unit 3 Micro: Science Cities and External Economies of Scale [29 Sep 2011]
Unit 1 Micro: The Supply and Demand Rap! [28 Sep 2011]
Unit 1 Micro: Exercise on Equilibrium Market Prices [27 Sep 2011]
Putting the “discrimination” into price discrimination! [26 Sep 2011]
Unit 1 Micro: Exercise on Market Supply [26 Sep 2011]
Unit 1 Micro: Exercise on Market Demand [25 Sep 2011]
Another Economics prop - for remembering MC=MR! [15 Sep 2011]
Study Note - Finite Resources and Sustainability [13 Sep 2011]
Unit 2 Macro: Value Added in Production and GDP [11 Sep 2011]
Mixing with the Nobel Economists [4 Sep 2011]
Unit 3 Micro: Quiz on Business Costs and Profits [25 Aug 2011]
Unit 4 Macro: Baltic Dry Index and Global Weakening [19 Aug 2011]
Unit 1 Micro: The Price of Football [2 Aug 2011]
Unit 1 Micro: Cotton Prices and the Retail Price of Clothing [13 Jul 2011]
Unit 1 Micro: Economics of Volatile Corn Prices [12 Jul 2011]
Unit 4 Macro: Dangers of High Inflation [11 Jul 2011]
Unit 3 Micro: Oligopsony - Dairy Losses Drive Farmers from the Fields [10 Jul 2011]
Where there’s muck there’s brass [6 Jul 2011]
China: The End of Cheap Labour [28 Jun 2011]
Two new RSA Videos - Matthew Taylor and Tim Harford [27 Jun 2011]
Evan Davis ‘Made in Britain’ - and a new trade data tool to play with [21 Jun 2011]
The Economic Importance of Manufacturing [20 Jun 2011]
Six Global Trends Shaping Business Strategy [15 Jun 2011]
AS Macro Key Term: Supply-Side Policies [25 May 2011]
AS Macro Key Term: Demand Pull Inflation [24 May 2011]
AS Macro Key Term: Cost Push Inflation [24 May 2011]
AS Macro Key Term: Recession [23 May 2011]
AS Macro Key Term: Spare Capacity [23 May 2011]
AQA A2 Economics - European Context [23 May 2011]
A2 Micro: Competition Policy [20 May 2011]
A2 Micro: Oligopoly and Collusion [20 May 2011]
A2 Micro: Oligopoly [20 May 2011]
A2 Micro: Price Discrimination [19 May 2011]
A2 Micro: Entry Barriers in Markets [19 May 2011]
A2 Micro:  Monopsony Power in Markets [19 May 2011]
A2 Micro: The Importance of Profit [19 May 2011]
A2 Micro: Market Structure, Conduct & Performance [19 May 2011]
A2 Micro: High and Low Marginal Cost Products [19 May 2011]
A2 Micro: Consequences of Price Discrimination [19 May 2011]
A2 Micro: Examples of Price Discrimination [19 May 2011]
A2 Micro: Perfect Competition [19 May 2011]
A2 Micro: Competition and Efficiency [19 May 2011]
A2 Micro: Outsourcing [18 May 2011]
A2 Micro: Business Growth [18 May 2011]
A2 Micro: Innovation and Economic Policies [18 May 2011]
A2 Micro: Innovation Efficiency and Welfare [18 May 2011]
A2 Micro: Moving Away from Profit Max [18 May 2011]
A2 Micro: Minimum Efficient Scale [18 May 2011]
A2 Micro: Economies of Scope [18 May 2011]
AS economics: Using the cost-benefit principle [18 May 2011]
AS Micro: What´s really behind the oil price rise? [10 May 2011]

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