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

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.