Java’s Threat to Microsoft
Microsoft’s Internet Explorer dominates the browser market. Although it appears that Microsoft gives Internet Explorer away for free, it is actually a tremendous source of profit for Microsoft. First, Microsoft bundles Internet Explorer with its operating system. This bundling makes the operating system more
valuable
to consumers and consequently raises the price that Microsoft can charge for Windows. Microsoft also profits from having special knowledge about Internet Explorer’s workings.
Many types of Internet application software are written to be used by consumers running Internet Explorer. The greater knowledge a company has about how Internet Explorer works, the better they can make their application software. Since Microsoft
knows
more about Internet Explorer than any other company, Microsoft has an advantage when writing application software for its browser.
Java poses a threat to Internet Explorer’s network externalities. Java is an Internet-friendly program that runs on top of Internet browsers and operating systems, and it was designed to work with all major types of computers. The idea behind Java is that programmers could write software
specifically
for it, and then these programs could run on any computer, even if the computer was not running Microsoft software. If Java, which was created by Sun Microsystems, fulfills its potential, then it, not Microsoft, will reap the benefits from network externalities. If everyone used Java, then you wouldn’t need to own Internet Explorer or even a Microsoft operating system to use most Internet software applications. As of this writing, however, Java seems destined to become an important, not critical, Internet programming language and consequently network
externalities
will likely be a continuing source of riches for Microsoft.
Externalities
in Word Processing Programs
Microsoft also receives massive network externality profits from Microsoft Word, its extremely popular word processing program. It’s
easiest
to share word processing files if everyone involved uses the same program. Many businesses
mandate
Word, not because they like Microsoft, but rather because they like network externalities. Businesses know that it is important for their
employees
to use the same type of word processing program. As a result, sales of Word are kept high because of its popularity.
The Superiority of English
English is the most useful language in the world to know. English-speaking countries gain a massive advantage because of the
dominance
of their native language. Ambitious children in France, for example,
spend
years
learning English because success in many
professions
requires mastering it. The French would benefit, therefore, if they could all magically trade their knowledge of French for knowledge of English. Of course, transitional costs would make it very difficult for the French to adopt English as their “native” language. Consequently, they try to convince people in non–French-speaking
countries
that learning French still has value. Because of network externalities, however, their arguments lack credibility.
Imagine a conversation between a French intellectual and a Mexican student in which the Frenchman
tries
to convince the student to take French rather than English as his second language. The intellectual might tout the relative beauty of French over English. The Mexican student, however, even if he believes the Frenchman’s assessment, would dismiss this claim as mostly irrelevant. English’s value to the Mexican student results from his being far more likely to encounter people who speak English than French,
especially
since most
educated
native speakers of French also speak English, while most native English
speakers
don’t bother to become proficient in another language. In its massive coordination game, the educated
citizens
of the world have decided to learn English as either a first or second language. As with all coordination
games
, once everyone has decided on a strategy, everyone benefits from continuing to play along. As with Microsoft Word, English remains popular because it is widely used.
COBOL
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Just as everyone benefits from speaking the same human language, programmers profit from knowing the same coding language. The U.S. government once tried to make COBOL a common computer language by announcing that it would only buy COBOL-compatible computers.
[4]
The U.S. government’s position as the top purchaser of computers gives it
enormous
power in cyber coordination games. In mass consumer coordination games everyone tries to match the decisions of other
buyers
. Consequently, one significant buyer can massively influence who wins the network externalities coordination sweepstakes.
[4]
Ibid., 51.