Paradigm Shifts and The Winner's Curse was published on Wednesday, August 6th, 2025. It's fun and often accurate to think of tech companies in pairs. Apple and Microsoft define the PC market. Microsoft and Intel won it. Google and Meta dominate digital advertising. Apple and Google won mobile. That, however, is not the defining pair of the smartphone era, which ran from the introduction of the iPhone in 2007 to the launch of ChatGPT in 2022. Rather, the two most important companies of the last two decades of tech were Apple and Amazon, specifically AWS.
The Apple part is easy. The iPhone created the smartphone paradigm, from its user interface, touch, to its distribution channel, the App Store, and was richly rewarded with a bit under half of the unit market share and a bit under all of the total profits. Google did well to control the rest in terms of the Android operating system and profit from it all thanks to Google Search, but it was search that remained their north star. The company's primary error in the era was the few years they let the tail, Android, wag the dog, Google.
The AWS part is maybe less obvious, but no less critical, and the timing is notable. Amazon created AWS in 2006, just 10 months before the iPhone unveiling, and the paradigm they created was equally critical to the smartphone era. I explained the link in 2020's The End of the Beginning. Quote, 'This last point gets at why the cloud and mobile, which are often thought of as two distinct paradigm shifts, are very much connected. The cloud meant applications and data could be accessed from anywhere. Mobile made the I/O layer available everywhere. The combination of the two make computing continuous. What is notable is that the current environment appears to be the logical endpoint of all these changes. From batch processing to continuous computing, from a terminal in a different room to a phone in your pocket, from a tape drive to data centers all over the globe. In this view, the personal computer/on-premises server era was simply a stepping stone between two ends of a clearly defined range.' End quote.
AWS was not the only public cloud provider, of course. Azure and Google Cloud Platform were both launched in 2008. But by virtue of being first, they both defined the paradigm and also were the first choice of the universe of applications that ran on smartphones, or more accurately, ran everywhere.
Smartphone winners and losers. If Apple and AWS were the definers and thus winners of the smartphone era, then it was Microsoft and Nokia that were the losers. The reasons for their failure were myriad, but there was one common thread. Neither could shake off the overhang of having won their previous paradigm. Indeed, both failed in part because they deluded themselves into thinking that their previous domination was an advantage.
For Microsoft, that previous paradigm was the PC and the Windows platform, which the company thought they could extend to mobile. From 2014's Microsoft's Mobile Model, quote, 'Saying Microsoft missed mobile is a bit unfair. Windows Mobile came out way back in 2000, and the whole reason Google bought Android was the fear that Microsoft would dominate mobile the way they dominated the PC era. It turned out though that mobile devices with their focus on touch, simplified interfaces, and ARM foundation were nothing like PCs. Everyone had to start from scratch. And if starting from scratch, by definition, Microsoft didn't have any sort of built-in advantage. They were simply out-executed.' End quote.
It took Microsoft years and a new CEO to realize their mistake, up until the point where they put their enterprise productivity dominance at risk. From 2015's Redmond and Reality, quote, 'There's reality and there's Redmond. And if one thing marked the last few years of Steve Ballmer's tenure as the CEO of Microsoft, it was a sense that those were two distinct places. In reality, Android plus AOSP in China and iOS were carving up the world phone market. In Redmond, Ballmer doubled down on the losing Windows Phone bet by buying Nokia. In reality, Office was losing relevance because of its absence on the mobile platforms that mattered. In Redmond, Ballmer personally delayed Office on iOS until the Windows modern version was finished. And in reality, all kinds of startups were taking aim at the Microsoft enterprise stack. In Redmond, Microsoft was determined to own it all, just as they had in the PC era.' End quote.
It's fitting that Microsoft and Nokia ended up together. Perhaps they were able to jointly go to therapy for success-induced obliviousness of market realities. Nokia dominated the phone market for the decade prior to the iPhone, and even once the iPhone was announced, blindly assumed that they could simply lean on their existing advantages to fend off the Silicon Valley usurper.
From 2013's BlackBerry and Nokia's Fundamental Failing, quote, 'Nokia dominated all the parts of the stack you don't see. They had, and in some respects still have, the best supply chain and distribution network. In addition, they had high-quality hardware that served every segment imaginable. Notably absent in these strengths is the OS and apps. By 2009, BlackBerry OS and Symbian were clearly obsolete, and their app ecosystems, such as they were, were eclipsed by iOS and then Android. The problem, as I alluded to above, is that while the OS was ultimately under the control of BlackBerry and Nokia, respectively, and thus could be fixed, the efficacy of their ecosystem wasn't and wouldn't be. And so, by far the smartest strategic thing either could have done would have been to accept their weakness. They didn't have an adequate OS or ecosystem and focus on their strengths. Nokia should have adopted Android stock and used their unmatched supply chain and distribution to do to their competitors, well, exactly what Nokia had been doing to their competitors for the last decade. If you think Samsung is running roughshod over everyone today, in 2007 they could only manage 41 million phones compared to Nokia's 110 million. Both BlackBerry and Nokia would have gotten a good OS and thriving ecosystem for free and been able to compete and differentiate themselves on the exact same vectors they had previously. To put it another way, RIM and Nokia had never been successful because of their OS or ecosystem. Yet, both decided their best response to iOS and Android was to build a new OS. In fact, the strategic superiority of the Android option for RIM and Nokia was even then so obvious that I suspect their core failing was not so much strategic as it was all too human pride. Owning an ecosystem seems much more important than owning services or supply chains, even if building said ecosystem completely devalues what you're actually good at.' End quote.
If the first commonality in Microsoft and Nokia's failure is the assumption that dominance in one paradigm would seamlessly translate into dominance in the next, then the second was in not making the strategically obvious choice, embracing iOS and Android for Windows and Android for Nokia, for fear of losing control and long-term relevance. What separates the two companies is that Microsoft under Satya Nadella rectified their mistake when Nokia doubled down with Windows Phone. That is why Microsoft still matters today more than ever, in fact, when Nokia phones no longer exist.
The two companies that stood in contrast to Microsoft and Nokia were Google and Samsung. While their dominance of the non-iPhone market seems obvious in retrospect, it wasn't at all pre-ordained. What is impressive about both companies is that they had the opposite of pride. Both were quite shameless.
In fact, from 2013's Shameless Samsung, quote, 'Every pre-iPhone phone maker is irrelevant, if they even exist, except for Samsung, who is thriving. Samsung the copycat was smart enough to realize they needed to change and quickly, and so they did. Or maybe it wasn't being smart. Maybe it was simply not caring what anyone else thought about them, their strategy, or their inspiration. Most successful companies, including Apple, including Google, seem remarkably capable of ignoring the naysayers and simply doing what is right for their company. In the case of smartphones, why wouldn't you copy the iPhone? Nokia refused. And look where that got them. We, especially in the West, have a powerful sense of justice and fairness when it comes to product features and being first. Business though is not fair, even if it is more just than we care to admit.' End quote.
Just as Samsung blatantly copied Apple hardware, Android blatantly copied the iOS interface. Plenty of people mocked Google for this shift. But not me. Apple figured out what worked. It would have been foolish to not copy them. Foolish like Microsoft and Nokia.
Apple, Amazon, and AI. There were striking resemblances in last week's earnings calls from Apple and Amazon, not just to each other, but to this early smartphone era that I've just recounted. Both companies are facing questions about their AI strategies. Apple for its failure to invest in a large language model of its own or deeply partner with a model builder, and Amazon for prioritizing its own custom architectures and under-deploying leading-edge Nvidia solutions. And both had similar responses. It's early.
Tim Cook, from a post-earnings all-hands meeting, struck an optimistic tone, noting that Apple is typically late to promising new technologies. Quote, 'We've rarely been first.' End quote. The executive told staffers, quote, 'There was a PC before the Mac. There was a smartphone before the iPhone. There were many tablets before the iPad. There was an MP3 player before iPod.' End quote. But Apple invented the quote-unquote modern versions of those product categories. He said, quote, 'This is how I feel about AI.' End quote.
