atw: Re: O.T. Follow up. Network externality and the dangers of Microsoft monopoly

I'm not a lover of Billy Gates' world, because I lived through the
period when computing became personal, word processing began to
flourish, and I personally suffered the consequences as the Microsoft
miasma obliterated much more promising technology of Concurrent CP/M and
the S100 bus. However, as much as I dislike Microsoft and many of their
products, we have only ourselves to blame for the computing environment
we now use.

What follows is a slightly edited extract from a book I am writing on
the evolution of knowledge management technologies and their impacts on
human cognition. I have stripped a lot of the links, notes and
references, but still include some of the key ones at the end.


Paradigms
---------

Moving data aggregation and document authoring and their associated
delivery processes into the electronic environment is promoting a major
shift in the document paradigm. We are moving from the world of paper;
where documents, spreadsheets and data tables or card files are tangible
objects (requiring slow and costly physical production, filing, sorting,
indexing and distribution processes). In an electronic paradigm, the
essence or content of the document or other information lives virtually
in a computer memory or electronic or magnetic storage. Content can be
instantaneously retrieved and displayed for viewing whenever and
wherever required. Although revolutionary, the initial shift in
technology from physical paper to electronic container is primarily
quantitative. In this shift, the essential idea that the document or
other information object is a discrete container for knowledge has not
changed in the minds of many who manage the objects.

However, the paradigm shift from paper to electronic documents is far
from complete, and has probably been impeded by Microsoft's dominance of
the personal computing market.

Today, the paradigm of electronic paper is supported by increasingly
complex and cumbersome applications providing the ability to represent
on-screen the exact appearance of paper outputs (WYSIWYG - what you see
is what you get). The only reason they work at all is because computer
processing power and speed have increased faster than the demands made
by these huge applications. Microsoft and Apple competed for many years
to provide graphical user interfaces (GUIs) to replicate the appearance
of paper, to the point that the MS Windows 2000 operating environment
grew to be one of the largest software applications ever created. The
contest has also been particularly fierce in the office software arena
between Microsoft Office and WordPerfect Office, who have been competing
for many years attempting to be all things for all people. The story of
this competition is well documented because of the long-running
anti-trust suite against Microsoft.


Development of "paper" computing
--------------------------------

I am no friend of Microsoft; because Microsoft's popular DOS and Word
products supplanted technically superior products I used as productivity
tools in my own cognitive toolkit, such as CP/M and WordPerfect.
However, as Cringely (1996) and friends of Microsoft note, Microsoft did
not create the circumstances that enabled its dominance of the market
for operating systems and productivity tools. These authorities argue
that Microsoft achieved dominance through being well poised to exploit
the opportunity created by the popularity of the IBM PC hardware and by
creating products that catered to customers' desires to work in a paper
paradigm even though the underlying environment was electronic.

Others, including myself, would argue that Microsoft's dominance is
largely accidental (see Cringely, and that - at least initially - given
the original accidents that the monopoly was more or less inevitable.
Probably due to the silliness of CP/M's owner, IBM ended up with Billy
Gates as the developer for MS DOS, at a time when most business people
didn't have a clue how to compare various computer systems - and "you'd
never get fired for buying IBM". The company I was working for in the
mid 1980's was producing superior multi-user business applications in a
Concurrent CP/M environment, and we simply couldn't sell them because
they didn't run on a PC. At first these were IBM's until the economics
of cloning took over (but they had to be clones from the S/W point of
view). Thus, the majority of personal computers in business ended up
running MS DOS.

=46rom my own experience, I would also argue that Microsoft's success
depended heavily on the power of the paper paradigm to influence
corporate purchasing decisions. No matter how efficiently information is
organized and managed, or how much epistemic quality has been added, a
human person cannot use information stored in an electromagnetic
environment until it is transformed into a format the human can
perceive. Because early personal computer memory and processing
resources were slow and expensive, the pioneering software applications
(e.g., CP/M, WordStar) managed data very efficiently with a few lines of
code to produce character-based displays. However, many humans, whose
perceptions were based on experiences with paper documents, did not like
the aesthetics of character-based displays. Application developers
targeting large markets wanted to make their products more "user
friendly".

Xerox PARC's Alto and Star systems and Apple's Lisa and Macintosh
systems established that operating environments and word processing
systems providing WYSIWYG tools with bit-mapped graphical user
interfaces (GUI) were much "friendlier" to user perceptions (Evans, et.
al. 1999; Myers 1998). Microsoft introduced early versions of the
Windows GUI to the PC market in 1985, which achieved a comparatively
small market share compared to DOS because there were few applications
using Windows. The release of Windows was followed by the Windows GUI
version of Word in 1989 and then by Excel and PowerPoint. Led by MS
Word, the now synergistic Windows packages achieved dominance in their
respective application areas around 1992. Because Microsoft's "killer"
applications all used a similar paper paradigm, they achieved market
dominance over products that were arguably technically superior (and had
been dominant in the past) but lagged in providing the paper-based GUI.
(And, of course, Microsoft did not make it easy for its competitors to
use the Window's operating environment.)

The role of Network Externality
-------------------------------

The other factor which helped Microsoft achieve and maintain its almost
total market monopoly over other WYSIWYG/Windows-based desk top
publishing and word processing applications is what Liebowitz and
Margolis (1999), Evans and Leder (1999) and Evans et al. (1999) call the
"network effect" or "network externality". Liebowitz and Margolis (1998)
define the concept as follows: "Network externality has been defined as
a change in the benefit, or surplus, that an agent derives from a good
when the number of other agents consuming the same kind of good changes.
As fax machines increase in popularity, for example, your fax machine
becomes increasingly valuable since you will have greater use for it.
This allows, in principle, the value received by consumers to be
separated into two distinct parts. One component, which in our writings
we have labelled the autarky value, is the value generated by the
product even if there are no other users. The second component, which we
have called synchronization value, is the additional value derived from
being able to interact with other users of the product, and it is this
latter value that is the essence of network effects."

The works cited above claim that despite the network effect, a "better"
technology can readily displace an entrenched product. From my
understanding of paradigms and personal experience with power paradigms
have to influence software purchases in organizations I have worked for,
I would argue the opposite. Network externality is a major issue to
businesses - especially given that compatibility of systems to interface
artefacts knowledge stored and communicated electronically with the
human communicators across the virtual network of trading partners is
paramount.

Word processing applications are tools people and organizations use for
communicating with other people and organizations. Spreadsheets and
database applications also have important communication functions, but
they are primarily personal productivity tools used for individual
purposes within organizations. While the majority of organizations were
still using paper as their primary medium for exchanging information, it
made little difference which word processor was used to produce the
paper - everyone could still read the paper. A number of competing word
processor suppliers could survive in such a market. However, once a
proprietary electronic format itself became the primary medium for
communication, the network effect virtually assured a monopoly for the
leading proprietary product used for that communication.

Although today's word processors and spreadsheets still firmly use a
paper document paradigm for their tangible output, most organizations
and many individuals now distribute and access documents produced by
these applications electronically for on-screen viewing rather or local
printing than by the physical transport of paper. In this regard it is
important that to achieve the formatting result required by the paper
paradigm, complex proprietary formatting codes are included within the
electronic documents to ensure that the recipient's screen displays the
document in as close to a paper format as possible. Despite efforts(?)
of software developers to develop software able to convert content
between one proprietary formatting code and another, the effective
transfer/translation of electronic documents between different
applications is fraught with difficulty. Assuming that it is even
possible to translate the document at all, it is practically impossible
to edit documents produced in one brand of word processor in another
brand of word processor.

Especially in large corporate or organizational networks where draft
documents are frequently exchanged for review and editing, both parties
in the exchange must either use compatible software from the same
vendor, or revert to the slow and costly physical editing and transport
of paper documents. At least in the corporate environment, there is also
a continuing requirement to refer to older (i.e., "legacy") documents -
and it is far easier to do this electronically from a central repository
than it is to maintain and locate the physical document. Thus once any
word processing product is taken up by dominant users in an electronic
communications network, the simple requirements of smaller users to
communicate effectively with dominant organizations ensures that the
majority product will drive out the competitors, irrespective of any
quality issues. The requirement to retain access to legacy documents
ensures that it would be a very costly for any large organization to
switch to an incompatible application.

In my own experience, when our major government client switched to MS
Word and required us to deliver tender documents electronically in MS
Word format, we had no choice but to comply. In order to communicate
internally we had no choice but to standardise on MS Word and force our
subcontractors to do the same. Now that we, the government, and our
subcontractors all have substantial legacies of MS Word documents, all
of us face major costs trying to convert to any other communication
standard

Only if the fundamental communication paradigm changes is there likely
to be any economically justifiable reason to change the dominant
information development and management applications. Such a fundamental
change is now taking place.

XML and open source are the eventual answers to the monopoly
------------------------------------------------------------

So long as we accept that our standard for exchanging information and
knowledge is electronically formatted paper, the network externality
requirements for our communications to be "understood" will work to
ensure that Microsoft retains a virtual monopoly over our computing
platforms with its hugely bloated software.=20

However, we now have the option to use XML to exchange semantically
encoded content that is vastly simpler to process than Word's Byzantine
structures that hides its vastly complex formatting tables in section
breaks and at the end of the document. Here, the exchange standard is
comparatively simple and open, and can be processed by a wide variety of
comparatively simple applications able to run in a variety of operating
environments.

As we move to the new standard, the content being communicated over the
networks will no longer require a particularly proprietary application
(and operating system) in order to make the information and knowledge
being communicated intelligible to the human readers. The end user can
use any application that understands XML.

By adopting open standards for our communication requirements, we should
be able to return to the days when communication by the physical
transport of paper meant the people could use whatever computer
application and output devices they liked, so long as it printed the
words on paper. We will probably still end up with a rule of three
situation, where most people use one system, with there being two viable
competitors; but at least the suppliers will be able to compete on their
merits.



Bill Hall

Documentation Systems Analyst
Head Office, Engineering
Tenix Defense
Williamstown, Vic. 3016
URL: http://www.tenix.com

Honorary Research Fellow
Knowledge Management Lab
School of Information Management & Systems
Monash University
Caulfield East, Vic. 3145
URL: http://www.sims.monash.edu.au/research/km/
=20

---------

Notes:

Cringely, R.X. (1996). Accidental Empires: How the Boys of Silicon
Valley Make Their Millions, Battle Foreign Competition, and Still Can't
Get a Date. Reprint Ed., Harperbusiness, 384pp.
_____. (1996a). Triumph of the Nerds. The Rise of Accidental Empires.
PBS OnLine and Oregon Public Broadcasting - http://www.pbs.org/nerds/
_____. (1998). Nerds 0.2.1: A Brief History of the Internet. PBS OnLine
and Oregon Public Broadcasting - http://www.pbs.org/opb/nerds2.0.1/

IBM's adoption of MS DOS: http://www.maxframe.com/HISZMSD.HTM;
http://web.singnet.com.sg/~francisg/event.html

Win2K rollout and bloat:
http://web.archive.org/web/20010807023134/http://www.zdnet.com/eweek/sto
ries/general/0,11011,2439261,00.html;
http://www.wec.ufl.edu/staff/hydew/comp/os/nt_bloat.html

Microsoft antitrust: http://www.cptech.org/ms/;
http://news.findlaw.com/legalnews/lit/microsoft/index.html;
http://www.neramicrosoft.com/

MS Office vs WordPerfect: Liebowitz, S.J. and Margolis, S.E., (1999).
Winners, Losers & Microsoft : Competition and Antitrust in High
Technology. Independent Inst., 288pp;
http://wwwpub.utdallas.edu/~liebowit/book/wordprocessor/word.html;
http://www.neramicrosoft.com/NeraDocuments/Analyses/rise_and_fall.html

XEROX PARC and the Alto and Star:
http://www.amazon.com/exec/obidos/ASIN/0887308910/002-6094970-1014466;
http://www-db.stanford.edu/pub/voy/museum/pictures/display/0-3-XeroxAlto
-text.htm;
http://www.cs.umd.edu/class/fall2002/cmsc434-0101/Handouts/xerox.pdf

GUI development:
http://www-2.cs.cmu.edu/~amulet/papers/uihistory.tr.html;
http://web.archive.org/web/20010823001110/http://www.macnow.com/issues/1
999/01/connections.html

Competition between word processing systems:
http://web.archive.org/web/20010823001110/http://www.macnow.com/issues/1
999/01/connections.html

Liebowitz & Margolis (1998):
http://www.amazon.com/exec/obidos/ASIN/0945999801/qid%3D931561702/sr%3D1
-1/002-6094970-1014466

Economides, N. (2000). Economics of Networks: Analysis and News of US v.
Microsoft - http://raven.stern.nyu.edu/networks/ms/top.html [Beware
sound effects on this site!]

Evans, D.S., et. al. (1999). The Rise and Fall of Leaders in Personal
Computer Software. from Microsoft Antitrust Litigation. National
Economic Research Associates, Inc. (NERA), Consulting Economists. -
http://www.neramicrosoft.com/NeraDocuments/Analyses/rise_and_fall.html

Evans, D.S. and Leder, M.R. (1999). Economics for the Third Industrial
Revolution. Viewpoint 1. Marsh & McLennan Companies, Inc. -
http://www.mmc.com/views/99sum.evans.shtml
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