Bill Gates, who walked away from full-time work at Microsoft last month, was perhaps the foremost applied economist of the second half of the 20th century.
Mr. Gates and Microsoft fundamentally shaped how people think about the behavior of modern markets in which technology plays a central role. Under Mr. Gates, Microsoft also challenged the conventional wisdom about competition, business strategy and even antitrust law.
Now, in the early years of the 21st century, Google is the company prompting a rethinking of assumptions.
Microsoft was a master practitioner of “network effects,” the straightforward precept in economics that the value of a product or service often goes up as more people use it. There is nothing new about the concept. It was true of railways, telephones and fax machines, for example.
Microsoft, however, applied the power of network effects more lucratively than any company had done before it.
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