Microsoft Windows

Microsoft Windows Network Effects Case Study

In the PC era, Microsoft leveraged indirect network effects to establish Windows as the dominant operating system. Windows was not just software; it was a platform with a vast ecosystem of third-party developers and compatible hardware. The more users adopted Windows, the more incentive software developers had to write applications for it. And conversely, the more software available exclusively for Windows, the more consumers and businesses were attracted to the OS (The Funnel Framework - Stratechery by Ben Thompson). This two-sided network of users and developers created a reinforcing cycle.

Over time, both users and developers were locked in: users because all their applications (and even business processes) ran on Windows, and developers because Windows had the largest audience to sell to (The Funnel Framework - Stratechery by Ben Thompson). Microsoft could thus capture enormous value (e.g. charging licensing fees on virtually every PC) thanks to this network lock-in. Competing platforms (like Mac or Linux) faced a chicken-and-egg problem: they couldn't attract users without a rich software library, and developers weren't motivated to build for a platform without users. The Windows story underlines how network effects, once established, can confer durable market power, in Microsoft's case, lasting decades.