The coming launch of Apple’s next iPhone has me thinking about the network effect and foreign policy. What do smartphones, networks, and foreign policy have in common? Quite a lot actually. In less than a week, Apple will announce its new iPhones, the high-end iPhone 5s and the lower-cost iPhone 5c. Highly anticipated and expected to be global bestsellers, the next iPhones nonetheless face an increasingly competitive landscape; recent statistics show rival Android capturing nearly 80% of the global smartphone market. While the iPhone is still a highly profitable product for Apple, its longterm health is threatened by its shrinking marketshare, which has led many to wonder if Apple is making the same mistake with smartphones as it did with PCs decades ago.
What mistake is this exactly? It’s simple: by controlling every aspect of the iPhone experience, from hardware to software, Apple is sacrificing market share for quality control and profit margins. This is the same strategy Apple followed when it released the original Mac OS in 1984. Google, by contrast, has taken the same approach as Microsoft, which is to license its operating system to any hardware manufacturer that wants to use it, and then use the popularity of its OS to sell its services (search, gmail, google maps, etc). This difference can be seen in the current availability of iOS and Android. Whereas the iPhone is available in only two screen sizes and three price points, there are hundreds of different Android devices available at a variety of prices. The result is that, while the iPhone has been wildly profitable for Apple, it has been crushed in the market-share wars. This fact has many analysts worried that, if this trend continues, the factors that have made the iPhone so successful, such as its leading selection of apps, its coolness factor, and Apple’s ability to negotiate special contracts with carriers, will disappear, leaving the iPhone as an expensive niche product like its cousin, the Mac computer.
This brings me to the importance of the network factor and what this all has to do with U.S. foreign policy. Like any operating system, iOS is only as valuable as its utility. That is to say, can it do what you need it to do? And like computer operating systems, phone OSes derive a large portion of their value from the number of other users on the platform. Windows was never the “best” operating system, but because it was the most popular, developers wrote programs for it and soon enough, the only way to get things done was to own a Windows computer. This positive cycle is called the network effect. But it can work in reverse too. If Apple’s market share keeps shrinking, it is possible that developers will stop writing applications for iOS and eventually the iPhone’s utility will be greatly surpassed by any $200 Android phone.
The same kind of boom and bust cycle is possible in foreign policy. Take for example global rules and norms on issues as varied as trade and human rights. Just like operating systems, standards on things such as the usage of chemical weapons and appropriate levels of state support for domestic industries derive significant portions of their value from the number of states that abide by them. Bashar al-Assad’s use of sarin gas has been so provocative precisely because 189 countries have agreed to stop producing, stockpiling, and using chemical weapons. If only a few countries had agreed to such a policy, it is likely there would be significantly less pressure on the U.S. and its allies to intervene in Syria.
It’s this kind of effect that makes the next decade of U.S. foreign policy so important. Confronted with new rivals for global influence, Washington is working to ensure its position of power survives in the 21st century. As such, its ability to set the rules and norms that will govern world affairs for the coming decades is incredibly important. American power in the 20th century rested upon the system of global governance the United States and its allies put in place following the Second World War. Today, rising powers such as China are seeking to modify the prevailing system, or replace parts of it, so as to better suit their interests. Western leaders recognize this threat and have responded by launching a series of new and ambitious projects, such as the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership. The idea behind these free trade agreements is to not only spur economic growth through trade liberalization but, more importantly, to set powerful precedents for future trade negotiations. In other words, by acting now to bind a significant number of states to certain trade regulations, Washington can unleash the network effect for a new, more modern global trading system that it has developed. The benefits of such a move would be large and long-lasting. In a recent interview with Foreign Affairs, Poland’s minister of foreign affairs responded to a question about fears of a declining Europe by declaring,
I worry about the whole West’s relative demographic and economic decline. We are still, Europe and the United States together, 47 percent of global GDP. If we create a transatlantic free-trade area, this might be the last moment when we can become a regulatory superpower. We need to co-opt the rising powers and give them stakes in existing institutions, because otherwise, demography being destiny, they will eventually create their own.
The network effect doesn’t just operate in the world of smartphones and computers. It’s also a powerful force in international relations, and Washington is racing to ensure it is at the center of the most powerful networks heading into this new century.