HOUSE_OVERSIGHT_018392.jpg

sent it along to some friends for their input, they’d be in the same bind. One after another, in just this fashion, users tumbled into the program. It became a standard, a “platform” in industryspeak. And Microsoft enjoyed a particularly appealing economic leverage: Developing Word may have cost millions, but once that work was done, each additional copy cost just cents to produce. This astonishing speed loop of profitability demanded a whole new economics. It also forced a reconsideration of what “competition” might really mean. Once Excel or Windows had settled into place, had become a standard, you couldn’t really compete with it. New, optimistic maybe even better rivals rushed into the marketplace, but they were all assaulting the impregnable wall of habit, of a locked-in technology. Should this be legal? Arthur wondered. Traditional economics said such monopolies were bad for everyone. (As did the Department of Justice and their global peers as they chased Microsoft for a decade.) But was that right? The “platform dividend” that accrued to Microsoft was surely large, but if you could somehow total up the benefit to the rest of us? The convenience, the efficiency, the benefits of Microsoft's billions of research spending might dwarf even Redmond’s massive profits. “Increasing returns,” Arthur wrote, “cause businesses to work differently and they stand many of our notions of how business operates on their head.” The essential phenomenon Arthur spotted at work two decades ago is something we now know as “network effects” - an idea that changed how we think about businesses, and particularly about the sticky and alluring power of gated, connected systems in nearly any setting. In the years after Arthur’s paper, billions of us ran madly along a course he had anticipated: We crashed our way as fast as possible into those single, winning businesses - rewarding them with near monopoly positions in exchange for the benefits of being “inside”. In the twenty years since Arthur spotted increasing returns in software, eight different billion-user worlds have emerged - and others are not far behind: Microsoft Office and Windows, Google Search, Google Maps, Facebook, Google Chrome, YouTube and Android all exhibit that appealing, “If you use it, I’ll use it!” logic. Profits and power, just as Arthur would have expected, followed right along. The most valueable company on earth in the early age of connection was one that, particularly, had perfected the idea of a closed iWorld where the efficiencies and charm of inclusion made outside assault difficult. Younger companies like Instagram, WhatsApp, Weixin and others hover not far from a billion users and point us to this gated model spread and repeated. It is easy enough to imagine a world where billions will be enmeshed behind certain gates. It was just as Arthur predicted: If ten people use WhatsApp or Facebook or YouTube, it’s hard for the eleventh to do something different. And when the eleventh person joins in, they make it harder still for the twelfth to walk a unique path. So: Windows runs on 90% of the globe’s PCs, nearly 30 years after its first release. Google has 65% market share. Android runs on 81% of new phones. WhatsApp neared a billion users with less than 50 engineers on staff. Facebook passed a billion connected people and faced no real competition. The rich got richer. 160 HOUSE_OVERSIGHT_018392