Question

Why do Apple's personal computer Operating Systems benefit from network effects?

Include in your explanation a brief discussion of the importance of Apple’s large installed base of current users.

How do these network effects and this installed base create an entry barrier into the computer Operating System market?

Answer 1

Your use-value depends on how many others are using it. Many technology firms rely heavily on network effects. A telephone is one example. Only when there are many others who own a phone, and you can use yours to get in contact with them, you get the most use out of a mobile. Although the network effects can be both positive and negative (where other people lose interest as in exclusive luxury items)

Apple had been at the losing side of network effects until the beginning of the last decade. Also today Windows dominates the worldwide PC operating system markets because of the indirect externalities of the network generated by its widespread adoption. No one really knows if the person sitting beside you is using a PC or a Mac. But several software developers have developed their systems exclusively for running on Windows. Since there is a small market for Mac users, it may be unprofitable for software makers to write codes for OsX Lion, Apple's device operating system

Nevertheless, Apple changed the game with the release of the iPod to make network externalities work for them. iPod-iTunes provides a classic case in externality of an indirect network. Once, perhaps it doesn't really matter if the next person uses the same music player brand as you do. (In addition, if you gained exclusivity from your shiny iPod in the early 2000s, there might be some negative network externality because iTunes revolutionized the way music is made available to people. Of course, purchasing a music player running iTunes makes a lot of sense because it's the world's largest online music store

Recently, Apple has also begun to manipulate direct network externalities. One such attempt was at FaceTime. If you've got enough people on Apple devices, buying an Apple product could make sense, and using FaceTime to interact with them. The more you use iOS devices from your network and chat using FaceTime, the more important Apple products are for you.