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LinuxToday.com.au: The Network Effect

Dec 25, 2000, 17:42 (4 Talkback[s])
(Other stories by Bill Bennett)

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"Economists have a clever theory to explain why users often get locked into technically unsatisfactory standards. The theory also sheds light on why a single company controls such a large slice of the PC software market. Economists call their theory the Network Effect. Assuming the theory is sound, it is likely to have more effect on the future of Linux and open source than many of the technical and quality issues Linux insiders tend to focus on...."

"A large community of PC users also means there's a lot of support in place. And because the majority of PCs use the same hardware and software standards components and programs can be swapped between machines with ease. In other words, the PC market shows characteristics of the Network Effect and for users there is a law of increasing returns."

"One consequence of the network effect is that once a product is established in the market, demand for similar but incompatible products collapses. Think Betamax. Think Amiga. This process makes it extremely easy for monopolies to form and it also means consumers get locked in to technologies. Note here that it isn't necessary the best technology that wins - just the one that manages to reach a dominant market share."

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