Problem: Immovable installed base -> Solution: closed system?

The ongoing puzzle, debate even, about the choice points between a closed and open system appears to have picked up a new aspect.  At least I had not noted this one before.  What differentiates a closed model from an open one is the extent that the business hordes the options created by it’s product offerings.  For the firm the open v.s. closed debate comes down to questions about short and long term advantages for the firm and it’s managers.  A closed approach hold out the hope of better price  discrimination.  While an open approach offers a change at wider adoption, more innovation, stronger network effects, and better protection against competitors.

So, the new  argument  I’d not previously seen goes as follows.  It is on the closed side.  A firm can adopt a closed architecture to deal with the rapid technology change.  Closed addresses the immovable installed base problem.  By making closing things down the firm captures the  ability  to migrate the installed base more quickly.  Or, so this story goes.

When dealing with the risk of technology driven displacement a large installed base is both a blessing and a curse.  It’s a curse, of course, because it is slow to move.  But it is a blessing since there is safety in numbers, e.g. an assurance that when technology changes you’ll not be left out in the cold.  The suppliers and users will have plenty of common cause to help solve to manage the switching costs.  In a closed system the vendor coordinates that.  You could argue that in a closed system the coordination problem is easier to solve.  I suspect that’s not so clear in practice.  The installed base ties it’s fate to the competence of the vendor.  The vendor is a single point of failure.

Open makes firms nervous.  Management is all about juggling risks.  Closed offers the impression your in control.  This impression is often wrong.  Closed systems lead to the systemic blindness; provincialism.  And yet I find the  argument  that a closed system is better able to handle rapid technology change sounding pretty good.  Possibly that’s because it’s about supply side risks.  I wonder why I think the closed system blindness issue is less serious on the supply side v.s. the demand side.

Having engaged with this debate for twenty years, and now finding it kind of dull, it’s a delight to see a new aspect to it.

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