Conventional wisdom in the press and the blogosphere says that the Apple vs. Samsung Electronics case now being heard in U.S. District Court in San Jose California illustrates a clash of “creative” design camps, even as we try to unravel the other layers– the patent infringement countersuit from Samsung against Apple, and the byzantine relationship between the two companies that has them still doing a brisk business with each other, as parts suppliers, even as the lawsuits progress. There are two cases in one. Apple has sued Samsung over infringement of patents, as well as trade-dress issues. “Trade dress” relates to how a company brings its product to market–whether another company is copying its approach too closely so that the consumer might mistake the product of the copier for that of the originator. Samsung is suing Apple over five patents, two of which are related to technologies that became standard in 3G networks on which the iPhone and other devices rely.
Is this déjà vu all over again? Yes, but it seems eons ago that Microsoft had the clout to essentially copy the key features of the Apple OS with its Windows launch–and fend off the legal challenges to that in court. And eons ago when federal regulators forced Microsoft to abandon “bundling” of the Explorer web browser with its OS. In a world where increasingly the “look and feel” of technology will win or lose market share–it’s hard to know how the courts are leaning when so much is at stake. Apple was shot down vs Microsoft over Windows. Will Apple be shot down now vs Samsung? Probably–it’s increasingly difficult to patent “design”. But this is Silicon Valley vs. a Korean giant, so a local valley jury may prove me wrong.
But there is something missing in all the press analysis of these clashes of the giants.
Beyond the Apple vs. Samsung headlines, there is the continuing story of major Japanese companies Sony and Sharp struggling to regain some of their mojo in the face of the both the Apple juggernaut and the rise of Korean giants LG and Samsung. Technology industry pundits will spin the story nine ways to Sunday, and pretend to know how and why this is happening. How many blogs, news stories, and articles must we read where the “design” superiority of one camp is touted as a sign of things to come, and another giant is decried as being hopelessly out of the running? Of course the current darling of the pundits is the California company that has taken the music, consumer computing, tablet, and smartphone market by storm.
It’s not easy to predict consumer tastes, or to predict what technologies will win in the market share wars. Who will be on top five years from now, or ten? It is easy to look at some basic principles of economics.
Why are the Korean companies doing so well now? Why do the Japanese companies appear to be struggling? (Sony and Sharp have both been in the AV news recently with news of falling sales in some categories.) Why is Apple so ascendant? What do these questions have to do with the Euro zone turbulence that dominates international headlines?
I don’t know how that jury in Silicon Valley will decide the Apple vs. Samsung case. I do know this, drawing on economic theory that (regardless of how technology trends play out) is unwavering:
• The Korean companies make great products. But much of the success of the Korean companies in the U.S. market, today, is related to the fact that Korea ties its currency, the won, to the dollar. It’s done so for years. Of course, this is not an official marriage, but an informal one: like many export-oriented countries the central bank of Korea intervenes regularly in currency markets to keep the value of the Korean won closely tracking the dollar (i.e. in a tight trading range). This keeps their export products highly competitive–vs. Japanese products for example.
• Much of the trouble with Japanese companies’ exports is tied to the fact that the Japanese Yen is very strong relative to the dollar or the Euro. It has been for years. This is what competent government policy (fiscal restraint) combined with a high savings rate among the population gets you. Low interest rates. And a highly valued currency. But bad for exports (i.e. for rising exports). Japanese companies of course have moved much manufacturing capacity to China, as everyone has. But no matter how creative Japanese designers are, they can not overcome the laws of economics that say that it’s very difficult to win any kind of export game when your currency is the most highly valued currency in the world.
• American companies, have greatly benefited from a relatively low-valued dollar for years. Apple is doing so now, with worldwide expansion. The politics behind the US dollar are complex, but suffice to say that the U.S. Treasury intervenes quite a bit in international currency and credit markets to keep the dollar low. It would take acres of space to go into it all–but basically, dollars, we print a whole lot of ‘em over here.
• The current crises in the Euro zone: no need to reiterate the basics. (Bottom line: with the common Euro currency countries like Greece and Spain can not resort to the old tried-and-true remedy of just devaluing their currency to get out of the mess). Let’s cut to the chase: Despite what happens in Greece, the Euro will not go away. The German mark and the French franc are not coming back. Why? Because the Germans–the driving country behind the Euro (more than France)–has learned from what happened to Japanese exports in the face of a strong Yen and will not allow themselves to go down that same road. The Germans, despite public hand-wringing and admonitions to their southern neighbors that they may take their ball and go home…well, they won’t. The Germans, in the midst of the present crisis, are crying all the way to the export bank. The Euro is being kept low in value by this crisis, and so Germany–an export powerhouse–benefits (the Euro is not low enough to out-compete the dollar however–but it's a lot lower than any German mark would be in the current climate). Lowered-value Euro equals healthy exports from Germany. It’s economics 101. And the existence of the Euro, and the Euro zone is the only way that Germany has managed to avoid a Japanese style conundrum of a too highly valued currency leading to perennial pain in the exporting sector.
What does all this have to do with technology markets? A lot. The armchair experts, claiming that a Microsoft, or a Sony, or any company, is just winning or losing “creative” contests or technology contests, are ignoring the primary drivers of international economics. Of course, there will always be winning technologies, but look behind the headlines for clues to huge forces at work. Low-value currency countries’ giants like Apple and Samsung duke’ing it out. High-valued currency/high end technology export countries like Germany and Japan trying to deal with the politics of that–albeit in different ways.
What smartphone your 13-year old niece leans toward this year or next, is important– kind of scary how important it’s become. But the game of winners and losers in the technology markets is being directed by central banks, government policy makers, and–to a lesser extent– by courts. So far, the courts have played a minor role, as the cross-dependency of the tech giants has had them avoiding recriminating complex lawsuits generally. That could change if the jury in San Jose does something bold.
