The famous economist Joseph Schumpeter spoke of “creative destruction” as the engine of capitalism. Innovation, understood as the development and application of new and revolutionary business models to facilitate economic transactions is undoubtedly the main and the only way in the long term, to increase the standard of living of a society.
Few events illustrate so well this reality as the technological transformation that we have been living in recent years. It is amazing to think that just a decade ago imagined that our economic future would be based on personal computers. It is now clear that the PC were overshadowed by mobile technology. In the US, sales of mobile devices with Internet access exceeded personal computers in 2010 and in 2016 will represent six times more than the last sales.
Despite the overwhelming adoption of these devices by users, the Old Continent continues to feel complexed face the innovative wave from Silicon Valley. Why – ask our leaders – European countries fail to emulate the success of Apple, Facebook and Google? It is the main reason why the European Commission (EC) proposed last year, creating a digital single market whose aim is none other than to join the demand of 500 million consumers and thus promote entrepreneurship in continent in the field of information technology.
Effective competition between suppliers is key. Only through a competition in this nascent digital market will be possible to reach new levels of productivity. To promote this fight between companies is the objective of the Commission in charge of the process that has just started against Android, the mobile operating system from Google.
The competition authorities fear that Google is using its wide market share to promote the adoption of its own applications, including the famous search engine and YouTube online video portal. However, it is very possible that the EC has the wrong shot this time. Being sure that Android has over 70% of the mobile software market compared to 20% of Apple and about 6% of Microsoft Windows, the three companies have clearly different business models. While Apple and to a lesser extent, Microsoft seek maximum integration between its operating systems and their mobile phones, Google works with independent manufacturers such as Samsung and Huawei, among others, including Amazon.
This assumes that Google provides more freedom to manufacturers time to incorporate its software. They decide the level of integration of their devices with the Android platform and, optionally, if they want to pre-install a suite of Google applications. In fact, a considerable number of manufacturers in France, Finland and Russia market Android models without any application of Google. In China, about 70% of smartphones on sale comes from the factory without them.
The model of Google is based on greater flexibility for mobile phone manufacturers and greater compatibility between devices. From a commercial point of view it is less advantageous, since, on average, an Android user generates significantly lower income than the average of an Apple iPhone user. However, it is certain that this strategy has enabled Google to expand its market, even though the Android domain is a very recent phenomenon.
There is thus the danger of the European Commission’s intervention to serve, not to enhance competition, but, on the contrary, to undermine long-term innovation. A regulatory intervention would undermine contractual arrangements similar from other manufacturers, thereby reducing the incentive to these (and potential competitors) to innovate in the future. That serves to reach the top if it leads to hostility on the part of public bodies?
It is not unrealistic to say that, in a few years, Google may be overtaken by new companies with better business models. That’s what happened with Microsoft and, before that, with Nokia and IBM. Digital markets are highly dynamic and are far from being restricted to a few large companies, since competition is increasingly strong and diversified. But to preserve the European Union and national governments should ensure a climate of innovation-friendly business. If not, Europe is at risk of falling behind.
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