Monopolies Are Dangerous: Korea Still Waiting To Upgrade To Vista

Sunday, 2007-February-04 at 13:07

The Korea Times : Windows Vista – Wait a Second! has news about Korea’s problems with adopting Windows Vista. As I noted recently, many of Korea’s issues are caused by their software monoculture. South Korea, it should be noted, is over 99% Windows. With a captive market, Microsoft was able to charge 70% more for boxed retail versions of Vista than it can in the United States.

This is something that often happens in monopolies. In this case, the monopoly is artificially-enforced by the use of an effectively-proprietary security algorithm for all in-country online transactions and ActiveX controls (which only work in IE and Windows) as the only active implementation of that algorithm.

Economics tells us that there are certain areas where there are “natural monolies,” such as utilities. In those fields, each additional competitor must fully-build its own network of pipes or cables to connect its customers, meaning that there is a linear increase in costs for the community for each additional competitor in the market. When you sign up for electricity from power company A, there is a relatively high fixed cost of pulling wires to your house. Power company B is less likely to come and try to serve your next door neighbor, because company A now has a cost advantage to add the additional distance from your house to your neighbor’s house.

Other areas are not naturally monopolies, such as retail sales, where adding new stores may actually result in lower costs to consumers as retailers compete for customers. It is true that adding a new store to the market means that the retailer has to pay for land and building and staffing and other costs of doing business, so in that sense, there is added cost–but the retailer does not have an effective lock on its customers. So I can buy food at store A, and then buy clothing at store B, and laundry detergent at store C, based on whose products and prices for each item best meet my needs.

Software, it seems, is in the second category. However, with the advent of the Internet and the use of file downloads and attachments for business and government enterprise communications, once software company A has a large enough portion of the market using its software, software company B’s customers find that they are locked out of business, employment, and political advocacy unless they switch. A few die-hards may rely on software company B’s incomplete reverse-engineered implementations of software company A’s file formats, but this is a far-from-optimal solution for the user. I have read that economists often call this “network effects.” (NOTE: I only made it to Intermediate Macroeconomics and Intermediate Microeconomics in college.)

In the case of South Korea, their security algorithm made this effect even more intense. Linux, FreeBSD, and Macintosh users, for example, along with Firefox and Opera users, find themselves unable to purchase things online or do their banking online in Korea. Korea set itself up to become the perfect victim: rather than offering a discounted price because of the lower income of the people of the country, a monopoly supplier raised the price. After all, what are they going to do? Choose Apple’s products and lose access to their banking and shopping accounts? Not likely.

ISO’s national bodies, ANSI-INCITS, the fifty state governments, and the federal government would do well to observe this. This is what is ahead for government and all other office software users if ISO adopts ECMA 376 (OOXML, ISO DIS 29500) as a standard. Currently, there is little competition in the enterprise office software market. If ISO adopts OOXML, competition will actually decrease, as difficult as that is to envision. However if ISO does not adopt OOXML, and ODF (ISO 26300) remains the only approved standard for office applications, there will be increased competition in that market, leading to lower prices and more choices for buyers (which will naturally flow down to the SMB and consumer markets as well).

South Korea would benefit by removing the ActiveX requirement [including extra controls used by banks and retailers] quickly, allowing implementations for Linux, BSD, Macintosh, Mozilla-based browsers, Opera, WebKit and KHTML-based browsers, and all sorts of other software to flourish in their domestic market. Such actions could easily cut the price for Vista to no more than the American price.

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