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Technology Stocks : PC Sector Round Table -- Ignore unavailable to you. Want to Upgrade?

To: Pierre-X who wrote (34)	3/20/1998 9:16:00 AM
From: Jonathan Bird	Read Replies (1) \| Respond to of 2025

Re: MSFT vs. DOJ - Network Externalities PX, Networked Externalities are indeed interesting. But the author of this of article is throwing in the concept as if it is somehow related to Monopoly power and this is not the case. Also an OS does not fit the definition of an item with a pure networked externality because it has some value by itself even if there is only one. My favorite example of an Network Externality is the fax machine. Its conceptualized this way. When the first fax machine rolled of the assembly line what was it worth? Well its cost was certainly thousands of dollars but it was worth nothing because you have nobody to fax to. But when the second rolls of suddenly yours goes from being worth nothing to something. Then when the third rolls of suddenly your is worth twice as much. And when the forth rolls of your is worth 3 times as much. And so on and so forth, fax machines everywhere get more "valuable" as more are produced even as the "cost" of a fax machine drops due to production efficiencies. Another example is eMail. The first eMail account was worth nothing. Then something when the second is opened up and so forth etc. Another example is the Internet itself. First POP goes up and its useless. blah blah you get it. Notice none of these very fine and pure examples of Networked Externalities have anything to do with monopoly power. An OS has an externality but its simply a "Positive Externality". Only one computer with an OS is still worth something and in fact it is very valuable because it is scarce. When a second computer and OS is sold that second buyer receives a positive externality from the sale of the first. The OS is already produced and its cheap to make a copy. Now the worth of the first person OS is less because it is less scarce. Doesn't help the first person that a second was sold at all. He already paid. He didn't intend to help the second, therefore its an externality. Now it becomes harder to see these things we you get to higher volumes. It starts to appear that some networked externalities are taking place. And there are some grey areas. But when in doubt examine the first one off the production line to see if its worth anything. How much was the first train station worth? Nothing until a second was built. I've beat this thing to death. Jon Bird