Analysis

By Yanai Levy, March 15th, 2023

The word “ecosystem” is thrown around in technology discussions with abandon to describe the way that certain companies intentionally create advantages to using multiple of their products together. Apple is perhaps the most famous example of a company doing this within the tech sphere, but there are others such as Adobe that do so, and they will be addressed as well.

When Apple develops their software, they build in interactions between the different versions of they make to ensure that the experience is elevated in key ways compared to using devices piecemeal from different companies. For example, iMessage syncs your messages and alerts between an iPad, iPhone, and MacBook that are logged in to the same account. You can respond to and view messages from any device, no matter if two of them are in your backpack at the moment. Photos you take on your iPad (you monster!), will show up on your photos app on your Mac for editing. It all just “automagically” appears. If you have Apple AirPods, they will pair via Bluetooth to all your devices even if you only manually pair one. You get the idea.

By contrast, if you pay Apple thousands of dollars on a laptop and tablet, but presume to buy a Samsung phone, the entire system breaks down and is full of obstacles. Music files cannot be easily transferred, photo file types are incompatible, etc.…. This is what technology reviewers call the “ecosystem” phenomenon, but the economic term for the kind of lock-in that consumers experience is network effects. In short it means that the value of a certain product is derived from the amount of other people who also have that product. Easily understandable examples of this exist, such as the telegraph, which is useless if you are the only one with access to it and becomes more useful proportionally to how many people can access your messages.

Apple is special in this regard because they take advantage of network effects in two ways. One is between your own devices, such as the example above, in which the more Apple devices you own, the better your overall experience becomes. The other is that the more people you communicate with that own Apple devices as well, the better that experience. The network effects pressure you intra-user and inter-user. This kind of double whammy is a large part of why Apple users find it so hard to consider other companies’ products, since they will lose many of these built in interactions between not only their own devices, but also the interactions between their Apple devices and other’s Apple devices.

This trend has lessened to some degree in recent years. While companies spend plenty of development time and money on making sure their products work best with their own other offerings, the barriers to moving between most consumer electronics devices have been lowered compared to ten years ago. iOS and Android both have “one click” migration apps to move data from one platform to the other, you are no longer prevented from opening a Microsoft Word Document on a Macbook, and an Adobe Photoshop file can be opened in non-Adobe programs. This is of course, generally due to companies succumbing to consumer and market pressures to make their software more interoperable, not out of goodwill. Goodwill does not chart well in board meetings, I am told.

Moving on from Apple now, there are other companies whose practices involve network effects such as Microsoft and Adobe. Both of these companies do not generally employ network effect design to the degree that Apple does but are deserving of a mention as well. Both company’s main attack vector is providing a centralized backbone to their various software products that facilitates easier use of their suite if you are willing to enter their system entirely. What I mean by that is the cloud-based backups, file sharing, and metadata additions that these companies build into their software suite, to name a few. For example, if you import a photo into Adobe Bridge, a file organization and metadata program, the data you assign to it will inform the file structure inside Adobe Photoshop as well.

On Microsoft’s side, it is more akin to locking you out of features in a given program unless you are willing to surrender to the rest of their ecosystem. One example of this is autosaving and version histories inside Microsoft Word, which are only available if you are working out of OneDrive, Microsoft’s cloud storage service. Both the Adobe and the Microsoft versions of network effect-boosted motivations are based on an inter-product relationship, as opposed to Apple’s inter and intra product strategy.

So, what can we do as consumers of these products who do not want to be disproportionately affected by the practices of these companies? Step one is recognizing these strategies where they may exist, as such as the examples I pointed out previously. This can help you avoid certain product stacks such as Adobe’s editing software if you feel that the walls of their garden are too high. There are always alternatives, though they may not be equally competent. If a burgeoning photographer has to pick an editing software to sink hours into to learn, they may be swayed by the knowledge that if they pick Photoshop, they will be compelled by design to pay for other Adobe products.

If you are aware of the network effect design in a company’s product, you can also judiciously choose which products you want purchase with the knowledge of what other products may be highly beneficial to use in tandem with them. For example, you may choose to buy an iPhone knowing that the Apple Watch is the best smartwatch on the market and is only compatible with the iPhone. We’re all willing prisoners here, in one way or another.

To sum up, many companies employ network effect-based strategies to ensure that buying one product will lead to consumers buying additional products from them for their personal use or for use with others they would like to be available to. Being aware of these strategies can allow you to avoid those products altogether, or more realistically, allow you to pick the network you would like to participate in so that you can gain the most from it.

Thanks for reading!