Classroom Companion: Business

Positive feedback event: Users
leaving service A to join service B
Service A
Service B
. Fig. 11.3 Path-dependent evolution with one positive feedback event. (Authors’ own figure)
 Case Study 11.2 Facebook vs Myspace
Facebook vs Myspace is a recent exam-
ple of path dependence. Either of the 
two companies could have ended up as 
the market leader. However, early events 
triggered Facebook to take the lead and 
suppress the future growth of Myspace. 
Myspace was inaugurated on August 1, 
2003, while Facebook was used for the 
first time on February 4, 2004. The early 
versions of Myspace and Facebook were 
rather similar from a user’s point of 
view. Myspace had a market lead on 
Facebook until 2008, most likely caused 
by being first to the market. There is no 
evident reason why Facebook should 
have taken the lead in 2008. One possi-
ble explanation is that Myspace was a 
less- flexible service, building most of the 
Myspace content in-house, and focusing 
on music and entertainment. On the 
other hand, Facebook had a more open 
and flexible platform that allowed third-
party providers to create content. They 
also focused on a social networking 
experience in which the users themselves 
created content for one another.
11.4 · Path Dependence and Lock-In

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A succession of several events may alter the market, as shown in 
.
Fig. 
11.4
. 
In this example, a positive feedback event boosts the popularity of Service A (pos-
itive feedback event 1). The increased number of customers overloads the capacity 
of Service A, resulting in a negative network effect eventually reducing the number 
of users of Service A (positive feedback event 2). Service B may first lose users to 
service A, but later receive users from Service A when the popularity of Service A 
declines. The popularity of Service B is also boosted by positive feedback events, 
for example, after having introduced new features.