When is Platform? What is an Ecosystem? What is a Market?

Following the recent ruling on Epic versus Apple (see The Economist, Sept 18^th, 2021: Apple wins a court battle with Epic Games—sort of and WSJ Sept 10^th, 2021: Judge Orders Apple to Loosen App Store Restrictions in Mixed Verdict), I reckon some tea leaves need reading.   These tea leaves may impact the likes of Google, Amazon, SAP, Oracle, Microsoft, and others who are grappling with competing and collaborating with each other in the cloud.

Epic had licensed a software game through the Apple Store.  As such, according to agreements signed by all like vendors, revenue received by Epic through such software had to be processed through the Apple Store and Apple takes a cut.  Epic had tried to update their software game re-directing payments around the Apple Store.  Apple kicked Epic off their platform.  Epic then sued Apple.

Much of the case centered on how the judge defined the market.  The case potentially has wide implications as the Apple Store, its IOS and iPhone are part of a vertically aligned stack of software and hardware infrastructure that is not unique to Apple.  The ruling was mixed. Epic had not demonstrated that the Apple Store is a monopoly. But Apple did unfairly restrict actions of vendors who should be able to charge for their own value-add services outside the Apple Store software. From where I sit this looks like a loss for Apple!  Apple is a gatekeeper to the Apple Store but its ability now to generate free money has been clipped.

What is a Market?

The findings focused on a real important point: What is a market? Defining the market leads to identification of the gatekeeper and how a monopoly might be defined. Should the market be defined by:

• The iPhone?
• Apple’s IOS?
• The Apple Store?

It turns out that none of these made the cut. The judge said the market that mattered in this case was the set of ‘digital mobile gaming transactions’. In this market Apple competes with Android (another operating system), and though Apple controls more than half of this market, the judge said it is not a monopoly but a measure of success. But the ruling will, if sustained, reduce the size of the pie that Apple takes going forward.

The Tea Leaves I see.

There is great confusion about what is a market, or a market that matters. The iPhone is a hardware device, that leverages the Internet, and it operates lake a platform on which various software services can be operated. As such, the iPhone equates to (cloud) infrastructure (think IaaS) that is being fought over mostly by Amazon, Google, Microsoft and others.

The Apple IOS is an operating system that is unique to Apple’s hardware kit. Microsoft Windows runs on kit made by several other manufacturers, not Apple. Android is another OS that works on yet more hardware different to Apple and Microsoft.  Competition takes place at so many levels such as PC versus tablet, PC versus PC, tablet versus mobile phone and so on.  These are not all interchangeable but they are all related.

The Apple Store is a software marketplace that only runs on Apple IOS. Android supports a different marketplace. These marketplaces are closely controlled by those respective vendors and it was here that Epic focused its case.  Microsoft Windows OS has a marketplace too.  There is an ecosystem of vendors on each marketplace; sometimes the same third-party vendor licenses very similar offerings on all three marketplaces.  The point is the marketplaces are not totally open; the owning vendor acts as a gatekeeper to limit who can sell on it; and there is a fee the owner charges for the pleasure.

What Does this Mean for Data and Analytics?

All this can be applied to business software. Think about how various software markets are evolving:

• Large infrastructure vendors (IaaS) are building up their platforms: Amazon AWS, Microsoft Azure and Google GCP.
• On these cloud infrastructure platforms these large vendors offer software platforms whereby you can build your own applications (PaaS). These compete with other application development platforms from vendors who don’t own infrastructure.
• Alternatively, you might subscribe to packaged business applications or SaaS. These are offered mostly from vendors who do not sell infrastructure IaaS or PaaS but increasingly the big cloud infrastructure vendors offer various SaaS offerings too.  Examples here include SAP, Oracle, Salesforce, and many others.

PS I will ignore the special case of Data as a Service for this blog!  If interested in this, go here: The Battle for Cloud Shifts to Applications and Analytics from Infrastructure.

Amazon charges third-party vendors to offer their software services on AWS, much like Apple charged Epic to license their software on its Apple Store.  Increasingly then the large infrastructure vendors will operate as gate keepers, dictating how business will be transacted on their platforms.  You won’t be able to play on those cloud platforms w/o the cloud platform owner’s consent.

The funny part here is that this is like the old ERP arguments.  We all thought the cloud was going to bring openness, right?  Nope.  Its all going back to where we started where a few critical gatekeepers will vertically integrate virtually the whole stack.

This takes us back to two questions:

• How will “market” be defined?
• Who is the gatekeeper, to whom economic benefit will ultimately accrue?

Even today we are still discussing what is a platform, and what is the platform that matters? Is there a data ecosystem? Or a software or business capability ecosystem? Which matters? Perhaps If you can answer the second question about economic beneficiary, you can answer the first.  With the Epic v Apple ruling, perhaps the winners of the cloud infrastructure will win the battle but lose the war?   There are so many fascinating questions:

• Will independent vendors create the ecosystem that matters that sell through specific cloud infrastructure platforms?
• Where does the money go?
• If all cloud infrastructure vendors offer the same set of (D&A) services or capabilities, where is the value-add and differentiation?
• Will you select the gatekeeper, since the (D&A) services are no not easily differentiated now at the ecosystem level?
• Does data as a source (or data-as-service) become now more important and valuable than the same/similar (D&A) services (PaaS or SaaS) offered across the cloud infrastructure vendors?
• Will the large cloud infrastructure vendors take over the software market entirely aka the ERP argument all over again?
• Where will innovation take place?
• Will the large cloud infrastructure vendors be equated to the Apple Store?
• How will this economic battle evolve?

The twist is that the judge also said Apple had the right to exclude Epic from their platform. This was due to Epic being in violation of their contract. What does Epic do now?  What should an independent D&A cloud service provider do if the large cloud infrastructure provider does not allow them to sell through their own platforms?  Will open, composable standards emerge to compete with the hegemony of a few?  Didn’t we have this conversation already?

There is more to come, clearly. And what constitutes a platform or ecosystem and what matters more, remains fluid.