30 years ago Microsoft taught you everything you need to know

I’ve been working on a series of posts to discuss the changing economics of the news business, and this post really belongs within my third piece in that series, but the comparison here is just too good to pass up.

A recent issue of the Economist features a piece titled The meaning of Bill Gates. In it, you’ll find these amazing paragraphs on what Bill Gates understood thirty years ago that let him dominate the PC market, which I have edited appropriately and added emphasis where necessary:

The first was that computing journalism could be a high-volume, low-margin business. Until Microsoft New Company came along, the big money was in maintaining a select family of very grand mainframes high circulation papers. Mr Gates realised that falling hardware printing costs, combined with the negligible expense of making extra copies of standard software articles, would turn the computer publishing business on its head. Personal computers could be “on every desk and in every home” Articles could come from anywhere. Profit would come from selling a lot of them cheaply, not servicing a few at a great price. And the company that won a large market share at the start would prevail later on.

Mr Gates also realised that making hardware writing articles and writing software publishing them could be stronger as separate businesses. Even as firms like Apple Hearst clung on to both the computer operating system and the hardware—just as mainframe companies had—Microsoft The AP and Intel Google, which designed the PC’s microprocessors distribution engine for the internet, blew computing’s publishing’s business model apart. Hardware and software companies innovated in an ecosystem that the Wintel duopoly tightly controlled and—in spite of the bugs and crashes—used to reap vast economies of scale and profits. When mighty IBM Newspapers unwittingly granted Microsoft The AP the right to sell its PC operating system to other hardware firms articles in other formats, it did not see that it was creating legions of rivals for itself. Mr Gates did.

It’s uncanny how well that fits.

So here are the endpoints of this comparison, if trends continue as-is:

1. Publishing will become a high-volume, low margin business
2. The AP will distribute and serve ads, newspapers will be relegated to creating the content

I’ll have more and better structured posts on this over the coming weeks.

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