Saturday, August 25, 2012

Apple vs Samsung: who wins?

In the tawdry scuffle between Apple and the Korean Samsung, a dispute over the layout and innovation contained in recent Apple products, and where it has now been ruled that almost every Samsung mobile device ever is guilty of wearing a pilfered Appletastic coat, my question is, as ever, who gets the cash?  Who benefits?

1.  Apple Employees (or a small portion of them)  This has transferred $1.05bn from Samsung to Apple, without any additional value being created by either side.

2.  Lawyers.  With one party claiming fees in excess of $800 per hour, this has transferred a large chunk of money from Apple and Samsung customers, who ultimately provide the cash, to lawyers.  Again, no value has been created, only transferred from one group to another.  A profession that needs additional automation?

Who loses?

Customers.  This has transferred money from customers to Apple and assorted lawyers, and the ruling will allow Apple to raise economic rent and thwart rivals.

This highlights the difference between real business and normative economic thought.  In the latter, perfect competition reigns, and the only way to make a profit (and all profit is unsustainable in the long run) is to be as lean and magic as possible.

But in business school, you quickly learn that the easiest way to make big cash is to get a monopoly, protect it with a glimmering moat of lawyers, and milk it for as long as possible.

As Jeremy Irons growls in Margin Call:

There are three ways to get ahead in business: be first, be smarter, or cheat.  And while I'm sure we've got a lot of smart people in this room, it sure is a hell of a lot easier to just be first.  

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