dcsimg

Fixing the Sustaining Problem Showcased at the Big 4 Congressional Hearing

SHARE

An essential congressional challenge was raised this week against anti-competitive behavior from Apple, Amazon, Facebook, and Google. I’ve been through this with several companies over the years, and from the testimony and my experience, it always comes down to abuse of power. Remedies are extreme, for instance Standard Oil, RCA, and AT&T breaking up to the consent decrees for IBM and Microsoft, leaving the companies intact but with various levels of internal (IBM) or external (Microsoft) oversight. I think it is interesting that Microsoft is the only company that emerged stronger than when they went into this process. This points to a remedy that fixes the problem but doesn’t destroy the company. I could argue that what happened with Microsoft was strategically beneficial for the company because it leads to practices that were far more partner and user friendly.  

Having been part of the internal control structure for a time at IBM, I think the difference is one of focus, sustained authority, and a lack of conflict of interest that made the Microsoft consent decree as effective at addressing the bad behavior as IBM’s—but with far less negative, long-term impact.  

Let’s talk about both fixing and avoiding the anti-trust problem this week.  

Mitigating the power corruption problem

Power corrupts; absolute power corrupts absolutely. This phrase from Lord Acton lies at the core of the problem. When you are fighting for leadership in a segment, the rules are very different than when you are in the lead. Also, once you dominate a segment, it becomes far easier to abuse customers and partners because they have to partner with you. The resulting uneven power in the partnership almost always leads to abuse.  

While Amazon was focused on more than Apple, bad behavior by both companies was showcased:   Amazon allegedly stole intellectual property from their partners and worked to replace their products, often knock offs, with their own. Apple made it very hard for non-Apple apps to compete with their Apple counterparts. Here is the thing—while this may seem tactically smart, it is strategically stupid.

Amazon is powerful because they are a one-stop-shop. But if sellers believe Amazon will copy their product and put them out of business, they will increasingly avoid Amazon like the plague. Customers who want those products will end up not buying through Amazon. Amazon’s reach could be massively reduced and—should another buying platform emerge—companies like Dell can spin up a viable counter surprisingly easily. For App developers, the path is a tad harder, but if the app store isn’t profitable for them, they don’t build for that store and instead build for Android or Windows, which could cause competitive migrations over time.  

While Apple’s ability to lock in customers is far stronger than Amazon’s, their behavior doesn’t have as significant of a short-term potential impact. IBM showcased the result could be even more devastating.  

IBM also had an incredibly robust lock-in strategy in the 1980s, which resulted in abuse. As the company entered the ‘90s, it went from the most valuable tech company at the time to one that was on life support and had negative brand equity. Negative brand equity means people will pay more for something that is unbranded over something that has your brand. Today, IBM no longer believes in lock in, but rather focuses on keeping its customers and partners happy. However, they remain a shadow of the power they once were.  

In the end, while this behavior can lead to short term sales advantages, the risk of getting caught is extreme, and the penalties can destroy the company.  

Here’s my suggested fix.

Fixing abuse of power

What the Microsoft Remedy showcased was that if you had oversight that was independent and qualified, the bad behavior could be surgically corrected without destroying the company. I believe that much like effective self regulation. If this is set up when a company starts becoming dominant, this protective function can keep the company focused on treating customers and partners with respect rather than abusing them for competitive advantage.

Dell likely comes the closest to meeting this ideal with its Chief Customer Officer. They placed Karen Quintos in charge of this function, and she was not only extremely motivated to assure customers were treated well, but she was also given the resources to measure this effectively and the power to address problems. Her close relationship with Michael Dell provided a right escalation path, and it has been clear Michael fully supported the function. This close relationship assures Dell Technologies, which is a massively influential company, doesn’t find itself in the position of Amazon, Apple, Facebook, and Google.  

Wrapping up: Assuring power doesn’t corrupt

Tactically abusing power is generally a failed strategy because those that you abuse tend to fight back in mass eventually. As IBM discovered in the 1980s, that can be a company killer even if you aren’t broken up. For companies like Standard Oil, the old AT&T and RCA abuse of power led to the firms’ effective destruction. Corporations are supposed to be immortal, and this means finding a way to mitigate this behavior.  

Microsoft’s consent decree drove the company to correct their bad behavior and emerge more reliable than they went in. Still, Dell’s proactive, powerful Chief Customer Officer approach, while similar, appears to prevent the problem in the first place. Assuring the longevity of a company is the purview of the company’s board, and boards should seriously review the Microsoft case and Dell solution to assure their respective charges avoid the pain we just saw in congress this week.

Rob Enderle has been a TechnologyAdvice columnist since 2003. His areas of interest include AI, autonomous driving, drones, personal technology, emerging technology, regulation, litigation, M&E, and technology in politics. He has an AS, BS, and MBA in merchandising, human resources, marketing, and computer science. Enderle is currently president and principal analyst of the Enderle Group, a consultancy that serves the technology industry. He formerly worked at IBM and served as a senior research fellow at Giga Information Group and Forrester.

 

NewsletterITBUSINESSEDGE DAILY NEWSLETTER

SUBSCRIBE TO OUR DAILY EDGE NEWSLETTERS