Leveraging technological externalities in complex technologies: Microsoft’s exploitation of standards in the browser wars

Abstract

Netscape enjoyed a 90% installed user base for its Navigator browser in August 1995 while the market share for Microsoft’s inferior quality browser was negligible. By August 1999, Microsoft had captured 76% of the browser market. Extant theory has focused on late entrants’ ability to win standards competitions through the development of products with superior quality/price performance. Yet this does not explain Microsoft’s success. Microsoft succeeded by leveraging installed user bases across vertically related markets, from Windows to IE. To date, little or no attention has been paid to the leveraging installed user bases. This paper addresses this by developing an analytical framework, based on a coupled Polya Urn model, that captures the dynamics of the Netscape–Microsoft battle. The framework highlights the strategic potency of controlling a proprietary standard in a vertically related market.