Wal-Mart is the Microsoft of Retailers

I've been thinking about platforms, and about monopolies recently.

I was one of the few who didn't think Microsoft was a monopoly.  The Canadian government defines monopoly this way:  "A monopoly occurs when there is only one seller of provides a commodity or service for which there is no close substitute.".  Is the Macintosh a close substitute for Windows?  Is Linux a close substitute for Windows?  The folks who will encourage you to switch to Linux are the same folks who argued (to prove that Microsoft is a monopoly) that Linux is not a close substitute for Windows.

The platform nature of an operating system makes it difficult to switch, which gives it some properties of a monopoly IF the services required on top of the operating system exist only on the operating system in question.  For example, if word processors only existed on Windows, then a user who needed to use a word processor would only be able to buy Windows.  The argument that Microsoft has a monopoly with Windows would require you to to argue that there is no substitute for Windows software - that if you wanted to edit a document or paint a picture, that you had to use Windows software to do it.  That's obviously not true.

So Microsoft is a monopoly because consumers have chosen to make them a monopoly.

There are two things that Microsoft did that made them the consumer's (default) choice:

  1. Commoditized Hardware
  2. Ensured Software Longevity

Today, you can go out and buy a sound card, drop it into your computer, and it will work.  Maybe you'll have to install some software, but even that might not be required.  It didn't used to be like this.

The three OS camps - Apple, Unix and Microsoft - approached hardware compatibility from different angles. 

The Apple approach was simple:  They sold specialized hardware, and only hardware created by them, or designed to their specifications, would work with their computers.  This works well, but for that Apple's hardware, until recently, came with a premium price that not everyone was willing to pay.

Unix, on the other hand, welcomed any hardware, and would accommodate it.  If a company invented a new sound card, then a driver could be created that would make that driver work with the flavour of Unix you were using.  Users were expected to know a lot about configuring their new device, answering questions about what interrupts and IO ports and DMA channels the device would use.

Microsoft's approach has generally been to accommodate the existing hardware, but also to invent standards that the hardware should adhere to.  To drive hardware manufacturers towards commoditizing their products.  Today, you can buy any video card, any sound card, any keyboard, any mouse, any printer, hook it up to a Windows system, and it will work.  Many of the standards that make this possible were created or driven by Microsoft.

Compare this to Wal-Mart.

Wal-Mart has a monopoly on low prices.  That sounds like a marketing-generated phrase but bear with me.

Why do people choose to shop at Wal-Mart?  Largely it's because they're inexpensive.  Wal-Mart has such a huge portion of retail in the US that if you use the same criteria that made Microsoft a monopoly - that people bought their products because they felt they had no choice - then people are choosing to shop at Wal-Mart because they feel they have no choice when it comes to finding the best prices.

How is Wal-Mart gaining this advantage?  By creating a set of standards that their suppliers must meet to sell to Wal-Mart.  Standards like how to deliver products, how to package them, how much they can cost.  All designed to minimize costs, wherever those costs are.

Take a look at this article on RFID at Wal-Mart.  It talks about how Wal-Mart is pushing RFID on suppliers, but they're balking.  Now look at this article from a few days ago, which talks about the success that Wal-Mart is having with RFID.

The manufacturers didn't want to support RFID, but Wal-Mart required it.  The result is that Wal-Mart stores that use it have better inventory tracking, run out of stock of items less frequently.  Having items in stock when people want to buy them means more sales.

This is how things are today; it gets interesting when you look at the future.

Microsoft is ahead of Wal-Mart in commoditizing their dependencies.  Today, anyone can create a computer with a PCI bus and USB ports, and that computer can talk to any device, and in fact whereas in the past, Unix systems were most frequently custom hardware designed by Sun or HP, today most Unix systems are based on the same architecture that Microsoft helped define.

And Apple?  Apple switched from their proprietary AppleTalk and ADB technologies and the NuBus bus to PCI, Ethernet and USB.  And they're doing better than ever.

Microsoft, on the other hand, is very slowly losing market share.  It will take years before this drop is significant, but the commodity world that Microsoft has created is starting to turn on them.  Rather than competing from a position of advantage, now they're competing with Apple and the various Unix camps on a more level playing field.

Wal-Mart is going to start seeing this same pressure.

When you convince a manufacturer to improve their process, the benefits of that process improvement are available to anyone who buys from that manufacturer.  Wal-Mart doesn't own the companies who manufacture the products they sell, so it's quite possible that a retail Apple could start reaping the benefits that Wal-Mart has worked to secure and become a competing discount retailer.