We recently spoke in class about information cascades and the impact of having all of your friends move to a new type of device. We used the example of two different instant messengers: A and B. Assuming all of your friends used A, we then evaluated the likelihood of people switching to B. This decision was predicated on the number of your other friends who also switched to B. There was some kind of a tipping point, at which everyone would move to B.

This was an interesting example, but it became even more interesting when we applied the same principle to a real example. We used Windows and Netscape. While Microsoft already had Internet Explorer, it had to decide how to balance its interest in making it difficult for Windows users to use Netscape with their vested interest in supporting their own product. If Microsoft made it impossible for Windows users to have Netscape as their internet provider, then they would run the risk of having Netscape loyalists switch to a different operating system.

Microsoft found the right balance and the Netscape lovers didn’t defect from Windows in high enough numbers to create any type of legitimate threat to Microsoft. But there is a new and very legitimate threat to Microsoft that has emerged as a serious player on the tech market. Apple has become instant messenger B from our in-class example. Windows was the dominant player in terms of computer operating systems for the better part of the past 15+ years and now is dealing with the impacts of a very real information cascade problem.

Apple has successfully marketed its Mac operating system as not only a more user friendly product, but as a cultural phenomenon. Mac users have tremendous disdain for PC’s and aren’t shy about sharing their opinions. They are so smitten with their hip machines that they actively recruit new members to join “the movement.”

Here is a great example of some of the talking points that Mac users love along with a simultaneous satirical parody created by a PC user:

http://www.youtube.com/watch?v=4Tq7yykR-DM

Well have they made a significant impact on the market? Has it been significant enough to scare Microsoft? Absolutely. That became crystal clear when Microsoft released its new Windows substitute called Vista. Vista is a Windows/Mac hybrid intended at becoming more user friendly like a Mac without changing settings so much so that traditional Windows users become too frustrated or confused. This is a clear and real indicator that Microsoft recognized there was a information cascade happening very quickly and that they needed to adapt to changing circumstances, before Mac was able to convert an even more substantial percentage of the market. However, it was at a huge risk. What if Windows users eventually decide that they don’t like Vista? Maybe they will think that Vista is so similar to the Mac operating system, that they may as well make the full switch to a computer, “void of viruses.” This is an interesting example of information cascades and it will be fun to track its progress over the next few quarters.