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Re: Trip Report: Nader's conference on Microsoft
- To: "Multiple recipients of list" <firstname.lastname@example.org>
- Subject: Re: Trip Report: Nader's conference on Microsoft
- From: Mitch Stone <email@example.com>
- Date: Tue, 2 Dec 97 16:47:50 -0800
In reply to Cem Kaner's message sent 12/1/97 10:52 PM:
>(1) Network Effects
>If you're the only person in the world with a telephone then it's not very
>useful. You can't call anyone. As more people get phones, the value of each
>phone increases. This is the "network effect."
>The network effect creates a powerful push toward a standard. Think of the
>VHS versus Beta competition. Some movies came in beta, some in VHS, some in
>both. The total selection of movies in stores was depressed by the fact that
>stores had to keep double inventory (beta and VHS). When consumers figured
>out (however they figured it out) that VHS was going to be the winning
>format, they flocked to VHS and abandoned beta. This phenomenon is called
>"tipping" (like, tipping the scales). The result was that lots more movies
>were available on VCR and so even fewer people bought beta. Result: beta is
Thanks for posting this fine analysis.
I'm no economist, but it seems to me that a similar argument for "network
effects" and "tipping" (and hence a "natural monopoly") can be made for
any industry. If Ford held a 90% market share, it is certainly the case
that network efficiencies would emerge (all auto mechanics could
concentrate on become expert in repairing Fords, after-market parts could
be standardized, etc.). The difference appears to be mainly that Ford,
operating in a diminishing returns industry, cannot readily achieve such
an outcome, and players in the software industry can. Perhaps this
accounts for why most of us would cringe at the prospect of an automobile
industry monopoly, but seem to accept one in software. Doesn't work for
me, but it seems to make sense to the majority of consumers.
The main confusion here (at the risk of insulting those who don't
consider themselves confused), is over the question of "standards:" what
they are, who sets them, and who owns/controls them after they become
standards. Here I think we have a tendency to accept as a standard
anything which is bought in majority quantities (e.g., set by the
marketplace). That's a fine and reasonable definition up to a point, but
it does not address the last two issues, which I think are even more
This is where the Beta/VHS analogy to the computer industry hits the
wall. Who set the video tape standards, for example? Both, as it happens,
were invented by Sony, with the later refined and popularized by JVC. But
take a close look at a VHS cassette or VCR today. Where are the copyright
notices? Where is the evidence that JVC or Sony own this standard? Has it
ever been changed, and by whom? In short, once releasing it the
marketplace, the inventors held no sway over its future, and the VHS
standard emerged as essentially a public-domain specification.
It is incidentally worth noting that VHS is a standard only in one
segment of the video market: Betacam is the standard for studio work, and
the 8mm and S-VHS formats are important in the consumer market. So
despite the power of "tipping" effects, the relative openness in the
handling of the tape format standards allowed new standards that serve
niche market to emerge. What would have been the outcome in the video
market if JVC has shown the same inclination toward complete control the
dominant tape standard exhibited by Microsoft in OS software? Much more
of a monoculture marketplace then we have today, certainly.
Another point worth noting is that video tape standards are essentially
invisible to the consumer. Yes, one format may be technically superior to
another, but these differences are mainly in the margins. Most consumers
would be hard pressed to distinguish between the functions of a tape
machine or the quality of the screen image produced by Beta, VHS or
another format. As far as the consumer is concerned, the dominant
standard is an arbitrary thing.
The same can hardly be said for computer software and OS's; they define
the entire functionality of the device, from personality to reliability.
We would expect the variety of consumer preferences expressed here be
much more like cars than VCRs. Ironically, we are well on our way to
achieving _less_ variety in the computer market than in the video tape
How can this be? The fact is that the software markets have gone well
beyond "tipping" effects, and on to "shoving." Standards are being
enforced on the markets arbitrarily, mainly by dint of the determination
of the leader to protect its position by suppressing competition. If
anything, the video tape analogy lends support to this point, not the
conventional view that it proves that "one standard must prevail."
Sorry for being so windy, but this particular issue really gets me wound
up. If I could consign two things to oblivion, it would be leaf blowers
and the Beta/VHS analogy.
Editor, Boycott Microsoft ** http://www.vcnet.com/bms
To doubt everything or to believe everything are two equally
convenient solutions; both dispense with the necessity of reflection.
-- Jules Henri Poincare