How to Destroy Two Markets
A little lesson about the software industry...
From Reuters
May 28 (Reuters) - President Donald Trump's administration has ordered U.S. firms that offer software used to design semiconductors to stop selling their services to Chinese groups, the Financial Times reported on Wednesday, citing several people familiar with the move.
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A former Commerce Department official said rules restricting the export of EDA tools to China have been under consideration since the first Trump administration, but were ruled out as too aggressive.
"They are the true choke point," the person said.
If you think that software is a choke point, then you need to talk to some IBM people about what happened with their BIOS. Which IBM thought was a choke point to people making PC compatibles. When what happened is that some people reverse engineered and created their own version of the BIOS and as everything else was off-the-shelf, led to the open PC architecture that most of us use.
All over China, people will be looking at these software tools and creating similar software. The USA has just created a market for China, much like it created a market when it banned chip exports.
These companies in China use the US tools because they’re the best-known tools, the ones people have the most familiarity with. You block them, everyone will shift to the alternatives they can get hold of. There is a network effect around software. Like many companies want people with MS Office experience. But it also means that companies use MS Office because they can get people who know it. Which isn’t the case with things like Open Office or Apple’s software.
So instead of blocking China from making chips, they’ll still be able to do that. Plus, they’ll now also be competing with the USA on the software to make chips, as the USA has given Chinese companies space to grow within China.
And this follows from the ban on exporting chips to China, which was designed to hold up other areas of business, and so the USA already acknowledges that it did not a lot to hold up China, as they started making chips.