Incumbent Power and Total War in High Tech

Mario, a senior studying Political Science and History at the University of Washington, is one of my oldest friends. I’ve had the pleasure of learning a lot about political science from him.  In particular, I remember a discussion with Mario on the concept of total war – a type of warfare where every and any asset of a country is used to wage war – and how it’s changed since World War 2 with the advent of nuclear weapons.

“There’s a lot of different viewpoints in [political science] on nukes and total war,” Mario typed out to me one night over AIM. “But basically, the advent of nuclear weapons has radically changed the game in terms of total war. Countries like the United States and Russia no longer can lose a total war; their nuclear arsenal ensures that they have this ultimate last resort of taking the world down with them.” This seemed to fit with the economics I knew about the subject: game theory for nuclear deterrence has a particular strategy known as grim trigger, where all parties in competition cooperate until one “defects” and goes against his competitors. From that point on, the players in the game turn on each other and work in heated competition to actively counteract the defecting party (presumably escalating the conflict). And the last and final point of escalation in a total war is the use of strategic nuclear weapons, culminating in a Doctor Strangelove-esque scene of apocalypse.

Of course, the US and Russia can and still do go to war. But there are strict controls on how these conflicts escalate. And furthermore, we don’t even really call them wars anymore. They’re “policing actions” or “conflicts.” The United States hasn’t formally declared war on another country since World War 2. War, in all of its brutality, seems to finally be taking on the eerily efficient countenance described in histories like The Guns of August: an unfortunate but carefully-controlled enterprise where we don’t let things get out of hand because of the grave consequences of total war.

All of this reminds me a lot of how things work in high tech business. While we often characterize high tech as being filled with radical upstarts like Twitter or Facebook, the reality is that many of the monolithic giants in high tech are the same players that have been in the industry for the past thirty years.  Hewlett-Packard and IBM are great examples of this: both advancing technology in novel and unique ways, but unabashedly huge and somewhat unwieldy. In a market where the ability to innovate and nimbly move amidst a minefield of Schumpeterian-esque creative destruction is paramount, it seems weird that HP, IBM, and in some cases Apple and Microsft are still able to compete aganist rich and powerful competition in their primary product markets.

It seems easy to fall back on the argument of economies of scale and monopolistic profits. Certainly, all of these high tech incumbents hold extreme market power and have tons of economies of scale thanks to extensive learning by doing. But we’ve also seen that economies of scale and extreme capital aren’t the only determinents of success in high tech. This is the market where six college kids in a garage can (and will) take you down if your technology and marketing aren’t up to par. So what gives? Why haven’t these garage partisans taken down the incumbents of tech in a bloody revolution of algorithms and clever designs?

I think it might be the same reason why we haven’t seen an apocalyptic World War 3 yet: the revolution would be too intense. 80% of the consumer desktop world runs on Windows, a ton of people use the databases from incumbent market-power tech giants like Oracle (especially now that they own Sun and MySQL) and IBM, and even Linux is somewhat corporatized by old players like Novell and HP. Much like a complete total war against superpowers would likely result in a nuclear war, having Microsoft actually slug it to the death with Apple would have disastrous consequences to say the least. A world without Windows is a scary and different place for the average consumer who isn’t used to another solution and has comparatively no training in using Linux or OSX. Having support abruptly suspended to enterprise DB’s like Oracle and IBM would be terrifying for a lot of serious companies, leaving them prey to hackers and other types who would thrive in a world where 0-day exploits are unpatched and neglected. Total war is too costly, because the demise of one of these giants would be too radical for their consumer base to deal with.

But Microsoft and Apple still do compete – heatedly, in fact. Like their country counterparts, they do it in a very prescribed and careful manner though, isolating markets where they make their stand in and restricting ad hominem and other attacks to very specific cases. Apple doesn’t try to fight Microsoft in every market, for example. Cupertino’s favorite fruit company doesn’t try to sweep up consumers in netbook market, and the company’s X-Serve servers seem half-hearted compared to the amount of dedication that Microsoft puts into Windows Server. One could take a very resource-centric view and say that Apple compartmentalizes its attacks on Microsoft because they only have finite resources and want to maximize their return in competition to things that they have a perceived comparative advantage in. But this is also like total war in a sort of a resource-based attrition view. One of the horrible costs of total war is in the attrition suffered in such a conflict (both in economic capital and human capital). Russia and the US would suffer terribly even in a conventional all-out conflict, much like Apple and Microsoft would if they decided to cut all ties and wage total war on each other.

But, to go back to the Guns of August, things don’t always unfold so easily. The Guns of August did well to contradict these perceptions of  moving towards a “perfect” world (and maybe even a natural economic equilibrium condition?) with the advent of World War 1, the first total war in history. Likewise, the changes in preferences from consumers and businesses due to socio-economic factors and a new perspective on technology and open source may eventually change the game and spell the death knell of those incumbent mega-firms in tech that can’t move fast enough. Just like how the seemingly invulnerable Soviet Union eventually fell to socioeconomics and changes in preference, so too might the big names in tech. It wouldn’t be the first name (*cough* SGI *cough*).  But for something this sweeping to happen, it can’t be motivated by a change in competition so much as a radical change in the world where that competition takes place in.

Maybe that’s it then. When the Soviet Union broke apart and died, it was an internal and largely silent affair. Maybe that’s how the big tech giants die too – to quote C.S. Lewis, “not with a bang, but with a whisper.”