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Re: [ba-ohs-talk] The Microsoft Assumption

For this discussion (and the previous one on Groove / MSFT), I 
strongly encourage everyone to read about the economics of networks. 
I do know that several large chandeliers went on in my head after I 
had ...    (01)

The best two references -- which should be read in combination I'd think -- are    (02)

  - Geoff Moore's books on technology adoption (particularly the 
Gorilla Game -- but any of his books is fine, he's somewhat 
repetitive -- but good to read)
    (his background: lots of high-tech marketing at McKenna etc., now also a VC)    (03)

  - Shapiro / Varian: Information Rules
    (both economists I believe in Berkeley, Shapiro just testified in 
the MSFT trial)    (04)

Geoff Moore isn't really talking about a network effect directly -- 
but leveraging it is really his "recipe" for becoming a Gorilla -- 
which is what you and I and everyone want the companies to become 
that we have our retirements savings in. (Moore makes that case well 
in the Gorilla Game). Note that as shareholders, we don't want 
companies to create lots of value -- we want them to extract most 
value for the company! (so that their stock price goes up) And so any 
company strategy, at the end and by and large, does not favor 
interoperability I'm afraid even if that increased benefits to 
society at large because, by and large, it comes at a price for the 
company's own stock price. But that's off subject.    (05)

Assuming a Gorilla in a "infrastructure technology market" (such as 
an OS, or middleware such as the browser), the fact of the matter is 
that the relative economic incentive for developing for the dominant 
network only -- which MSFT undoubtedly is for computers on our desks 
-- is just HUGE. In capital letters. Intuitively that makes sense, 
but if you do the analysis, it turns out it is much larger than at 
least I would have thought intuitively. (I did the analysis for 
myself for the instant messaging market) Interoperability, or going 
after the smaller network may not even pay for itself under many 
circumstances, not to speak about creating a profit. I can't speak 
about some of the examples that were mentioned on this list, but I 
think we should keep this in mind. Granted, some technologies are 
more susceptible to that then others (there is only a small network 
effect in the automotive industry, for example, that's why there are 
still so many vendors), but OSs have a strong one, and middleware an 
even stronger one. The "Microsoft Assumption" as it was termed here 
is really only a direct reflection of that.    (06)

Before anyone flames me, please note I don't say that I like this 
situation. I spent a substantial part of my life defining open 
industry standards and have all the credentials I think. For example, 
I'm writing this on a Mac... I just think that a lot of emotions go 
away if everyone first agrees to agree on the underlying facts -- 
such as the economic laws of networks ;-)    (07)

One more tidbit: McNealy recently pointed out that you cannot order 
your bread from safeway.com unless you use Explorer. (he would have 
said "virus checker is one thing, but for heaven's sake, your BREAD!")    (08)

Cheers,    (09)

Johannes Ernst.    (010)