Author(s)
David S. Evans and Richard Schmalensee
Source
CESifo Working Paper Series No. 1314; CESifo Economic Studies, Vol. 51, 2-3/2005
Summary
This paper looks at trends in the software business.
Policy Relevance
Policy can go wrong if we do not understand the business factors shaping forms of new economic growth.
Main Points
- Software “platforms” like Microsoft’s Windows are technological spaces serving many different users.
- The best strategy for software platforms is to operate as two-sided platforms, serving two (or more) groups of users. Windows serves application developers and consumers.
- Another strategy is vertical integration. Apple integrates its hardware, software, and provides content as well, serving mainly consumers.
- This is more rare as markets bring more low-cost, quality products that work on the platforms.
- Platform vendors usually make most of their money from one group of users; which group depends on costs, demand, and strategy.
- As technology lets devices and software do more, platform vendors offer discounts to those who buy both the platform and a product that goes with it (“bundling”). Their motives are not anticompetitive.
