How a software monopoly arose


Recently, Joel on Software wrote an essay on good programmers and how they are qualitatively different from average ones. This is not a new realization, and he knows it and references sources like "The Mythical Man Month." It was accepted wisdom decades ago that a small team of really brilliant programmers would make a better product than a giant team of lesser ones.

That wisdom, however, failed to predict the rise of Microsoft. That wisdom says a software monopoly is impossible because there are reverse economies of scale in software development. So how did Microsoft do it. The answer to that is perhaps the true genius of Bill Gates.

The trick, in part, was finding ways to make software tremendously broad in scope and features. Microsoft Word has bazillions of features, as most people know. Windows in its kernel isn't much more complex than other systems but the real Windows also includes a vast collection of DLLs (libraries) that seem external but are really part of the OS. To clone the OS you must make these DLLs -- and many other things.

A program like MS Word, with so many features, takes raw money to clone. You need that core team of great programmers -- and Microsoft has many great programmers, make no mistake -- but you also need a giant team of lesser ones to keep all the features going, to QA and document them, to translate them and make them work in so many environments.

This does have an economy of scale in the development. Combine that with the immense economies of scale that exist in the distribution of all soft things that can be copied for free, and this permitted a monopoly.

Of course, no single user makes use of all the features of MS Word, so it took even more skill to get them to demand such a complex program, when they might be better served by a leaner, more elegant system. Like I said, this is only part of it.


Your explanation lays out Bill Gates strategy rather well (in 1984, he told Forbes magazine how he would build Windows to increase the functionality of the OS and take command of the interface), but fails to account for demand side externalities - the fact that, at least for office applications, the quality of the applications themselves is less important than who else has them. People use Word, for instance, because everybody else does - the fact that there may be other (perhaps better but not interoperable with Word) applications out there)

So, if Microsoft hadn't taken the dominant position, someone else would. In esatblishing markets, there is a role for a dominant proprietary player - who sets standards and handles interoperability for a while. As the market gets more established, innovation happens at different rates in each layer of functionality, and the competition between proprietary/integrated vs. open solutions is on.

For some excellent discussion of this, see Neal Stephenson's "In the beginning.....was the command line" at, or Clayton Christensen's "Skate to where the money will be" from Harvard Business Review, November 2001.

Word Perfect was already on track to this state. In fact, for a long time after MS Word took over the general office, Word Perfect was the standard among lawyers. The lawyer's clients eventually pushed them into Word.

However, again, it is the complexity of Word that allowed the monopoly. With simpler word processors, it is not so hard to make a product that can compatibly read and write the files of the competitition, even when they try to make the formats proprietary. And people tried this but the program was so complex that there were always little minor things to go wrong (as is the case with open office today). In traditional thinking, the small, brilliant team could not only make a better product than the big company, they could make it compatible so you had no reason not to switch.

I was just scooting around your site while studying for comps in stats. And if FSM is God the WordPerfect is an angel. Cuz that program does everything Word does but better. Have you ever opened a Word doc in WordPerfect? Hit reveal codes and see the monstrosity that is Word.

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