Vendor Lock-In
- From the Wikipedia entry http://en.wikipedia.org/wiki/Vendor_lock-in

In economics, vendor lock-in, also known as proprietary lock-in, or customer lock-in, makes a customer dependent on a vendor for products and services, unable to use another vendor without substantial switching costs. Lock-in costs which create barriers to market entry, may result in antitrust action against a monopoly.

Embrace, extend and extinguish
- From the Wikipedia entry http://en.wikipedia.org/wiki/Embrace%2C_extend_and_extinguish

"Embrace, extend and extinguish," also known as "Embrace, extend, and exterminate," is a phrase that the U.S. Department of Justice alleged was used internally by Microsoft[4] to describe their strategy for entering product categories involving widely used standards, extending those standards with proprietary capabilities, and then using those differences to disadvantage its competitors.

The strategy

The alleged strategy's three phases are:

1. Embrace: Development of software substantially compatible with a competing product, or implementing a public standard.
2. Extend: Addition and promotion of features not supported by the competing product or part of the standard, creating interoperability problems for customers who try to use the 'simple' standard.
3. Extinguish: When extensions become a de facto standard because of their dominant market share, they marginalize competitors that do not or cannot support the new extensions.

The U.S. Department of Justice, Microsoft critics, and computer-industry journalists claim that the goal of the strategy is to monopolize a product category. Such a strategy differs from J. Allard's originally proposed strategy of embrace, extend then innovate only in how the final step is viewed. Microsoft asserts that this strategy is not anti-competitive, but rather an exercise of its discretion to implement features it believes customers want.

Network effect
- From the Wikipedia entry http://en.wikipedia.org/wiki/Network_effect

Network effect is a term used narrowly to describe business phenomena, or more broadly to describe non-business phenomena.

In the narrow usage, a network effect is a characteristic that causes a good or service to have a value to a potential customer which depends on the number of other customers who own the good or are users of the service. In other words, the number of prior adopters is a term in the value available to the next adopter.

One consequence of a network effect is that the purchase of a good by one individual indirectly benefits others who own the good — for example by purchasing a telephone a person makes other telephones more useful. This type of side-effect in a transaction is known as an externality in economics, and externalities arising from network effects are known as network externalities. The resulting bandwagon effect is an example of a positive feedback loop.

Origins of the network effect

Network effects were a central theme in the arguments of Theodore Vail, the first post patent president of Bell Telephone, in gaining a monopoly on telephone services. In 1908, when he presented the concept in Bell's annual report, there were over 4000 local and regional telephone exchanges, most of which were eventually merged into the Bell System. The economics of network effects were presented in a paper by Bell employee N. Lytkins in 1917, where the term network externality was used.

Network effects were more recently popularized by Robert Metcalfe, the founder of Ethernet. In selling the product, Metcalfe argued that customers needed Ethernet cards to grow above a certain critical mass if they were to reap the benefits of their network.

According to Metcalfe, the rationale behind the sale of networking cards was that (1) the cost of cards was proportional to the number of cards installed, but (2) the value of the network was proportional to the square of the number of users. This was expressed algebraically as having a cost of "N", and a value of "N^2". While the actual numbers behind this definition were never firm, the concept allowed customers to share access to expensive resources like disk drives and printers, send e-mail, and access the internet.