Law #8: The Law of Duality
The Law of Duality says that "in the long run, every market becomes a two-horse race."
Young markets have many rungs on the ladder. They are highly fragmented. Gradually, as the market matures, players disappear and the market settles on exactly two primary players. Examples of this phenomenon are everywhere:
- Coke and Pepsi
- Canon and Nikon
- Nike and Reebok
- GM and Ford
- McDonalds and Burger King
It often takes a long time for things to settle down, but in the end, markets usually give people what they want, which is two strong choices. Buyers don't like choosing between ten or twenty players. It's too stressful.
A big reason for this effect is that most people don't make their own buying decisions. People tend to buy what somebody else is buying. Pragmatists buy something only after they see the Early Adopters buying it. Conservatives buy it only after the Pragmatists are buying it. Laggards buy it only when the peer pressure and ridicule is so severe that they look like absurd for not buying it. Market share begets market share, and the rich get richer.
Even as the market gets very mature, it will continue to tolerate the presence of more than two players. However, the top two will have the lion's share of the market. All other players are essentially in niche segments.
Once a market reaches this state, it will generally not allow #1 and #2 to move around. For example, the market will never allow the top two players to change positions. Burger King will never be #1.
Furthermore, the market will not allow #1 to get too far ahead. Just as markets hate having a ten-horse race, they also hate having a one-horse race. When #1 gets too far ahead of #2, the market will usually correct the problem.
The Software Industry
At this point, I assume most of my readers are confused. After all, everything I said above makes virtually no sense at all when we look at the software industry. We don't have two strong choices. Most software market segments are a one-horse race. In many cases, Microsoft is so utterly dominant that there is no clear #2.
- There is no strong #2 desktop operating system.
- There is no strong #2 office suite
- There is no strong #2 developer IDE.
Why do these markets not follow the Law of Duality?
The popular notion today is that Microsoft is an illegal monopoly. I have generally tried to stay out of this debate and I think I will continue to do so. Antitrust law has never made sense to me anyway.
But whether or not Microsoft is a violator of government law, it is clearly a violator of the natural laws of marketing. The current situation in software is not supposed to be possible. The market should have ensured the presence of a strong #2, but it has not.
Even more strange here is the fact that software is still a rather young industry. At its tender age of perhaps three decades, we should expect to still have very high fragmentation. But we don't.
I don't think antitrust law is the answer. It is quite clear that the federal government is no match for Microsoft.
But the market itself still has a lot of power. The Law of Duality may yet show up.