A good is subject to positive feedback when success breeds greater success and failure breeds further failure.

In 2011, a consent decree between Microsoft and a federal court prohibiting certain business practices expired, marking the end of an era for the company. Beginning in 1998, the federal Justice Department as well as 20 states and the District of Columbia sued Microsoft, alleging predatory practices against competitors to protect the monopoly position held by its Windows operating system. At the time, Microsoft was by any reasonable definition a monopoly, as just about all personal computers in the late 1990s ran Windows. And the key feature supporting this dominance was a network externality: people used Windows because other people used Windows.

Despite urging by some economists, the Justice Department did not challenge the Windows monopoly itself, as most experts agreed that monopoly was the natural outcome of an industry with network externalities. What Justice Department lawyers did claim, however, was that Microsoft had used the monopoly position of its Windows operating system to give its other products an unfair advantage over competitors.

For example, by bundling Internet Explorer free as part of Windows, it was alleged that Microsoft had given itself an unfair advantage over rival web browser Netscape, because it prevented Netscape from charging customers for its use. The Justice Department argued that this was harmful because it discouraged innovation: potential software innovators were unwilling to invest large sums out of fear that Microsoft would bundle an equivalent software with Windows free. Microsoft, in contrast, argued that by setting the precedent that companies would be punished for success, the government was the real opponent of innovation.

After many years of legal wrangling, the consent decree was signed in 2002, which barred Microsoft from excluding rivals from its computers and forced the company to make Windows seamlessly interoperable with non-Microsoft software. This eliminated any advantage Microsoft had through free bundling of its own programs into the Windows package.

Although the case against Microsoft consumed many tens of millions of dollars in legal costs and is considered one of the most significant antitrust cases of its generation, its long-term effects are hotly debated. Some say that the case essentially had no effect, as the cutting edge of technology moved into mobile devices like smartphones and tablets, leaving Microsoft and its PC-centered business behind. Others argue that, although the case may not have dampened overall innovation as Microsoft claimed, it changed the culture of Microsoft itself, making it more cautious and therefore unable to explore and capitalize on new technological trends.

Two effects, however, are beyond dispute. Because of Microsoft’s example, products with network externalities are often priced at a loss or even at zero—as in the case of today’s web browsers, Chrome, Firefox, and Internet Explorer, which are all available free. Second, rival high-tech companies now routinely charge one another with predatory behavior that exploits a network externality advantage—as in Microsoft’s recent charges against Google for its advantage in the search engine market.

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There was a big shake-out in the world of social media websites in 2011. That year Facebook was in the midst of negotiating a half-billion dollar investment, MySpace was preparing to fire nearly half its staff, and Friendster was transformed from a failed social media website to an online gaming website. The irony of these events is that Friendster and MySpace started before Facebook—Friendster in 2002, MySpace in 2003, and Facebook in 2004. Yet, by 2011 Friendster was in complete collapse and MySpace was in steep decline.

By 2013, MySpace’s registered users fell by a third, to 36 million, compared to 54 million in 2011. As the former president of MTV Networks, Michael J. Wolf, commented, “MySpace was like a big party, and then the party moved on. Facebook has become much more of a utility and communications vehicle.” MySpace became difficult to navigate and cluttered with pop-up ads of dubious value selling things like weight-loss products, while Facebook offered a simple, Google-like interface. One Myspace user who defected to Facebook said it became “amateurish” and “boorish.” She said, “Every time I logged on it was just messages from bands I barely heard of. Facebook allows you to actually connect with real people, rather than bands or celebrities.”

Friendster’s demise began in 2009 when a change of interface and technical problems upset users while Facebook was on the rise. As one expert noted, Friendster imploded in a systematic way: first less-connected users left, lowering the benefits of staying to more-connected users, until the cascade of departures unraveled the site.

The events of 2011 were not what industry insiders had expected. In 2005, the newspaper conglomerate News Corporation bought MySpace for $580 million. Until April 2008, the number of MySpace users consistently exceeded the number of Facebook users. After the acquisition, News Corporation announced an ambitious revenue target of $1 billion. But to meet these goals, ads were accepted that made the site slow, buggy, and difficult to use. By 2011 MySpace was losing money and News Corporation sold it for $35 million, a 94% loss over 6 years.

Chris Wolfe, a founder of MySpace, tried to explain the reversals: “The paradox in business is, ‘When do you focus on growth, and when do you focus on money? We focused on money and Facebook focused on growing the user base and user experience.’” In contrast to MySpace, Facebook refused to be acquired by a larger company, allowing it to ignore revenue goals. That is, until 2012 when Facebook began a push to open its website to ads, provoking a backlash among users. Some observers have warned that Facebook could go the way of Friendster, as it has experienced a dramatic decline among younger users, who have switched to competitors like Snapchat, Instagram, Tumblr, and Twitter. Stay logged on, somewhere, for the outcome.

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