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Unformatted text preview: MIS 301 Exam 2 Study Guide Elota Patton Chapter 6: Understanding Network Effects Backward compatibility- The ability to take advantage of complementary products developed for a prior generation of technology. Blue Ocean strategy- An approach where firms seek to create and compete in uncontested blue ocean market spaces, rather than competing in spaces and ways that have attracted many, similar rivals Complementary benefits Products and services that add additional value to the network. Add value to existing products to provide complementary benefits Ex: Xbox Games only for Xbox (Halo), How-to Books, Software add-ons, even labor iPod for Apple has brought many complementary goods - different speakers, docking stations, and even car manufacturers that allow iPods to be accessed through the navigation system. Convergence- When two or more markets, once considered distinctly separate, begin to offer features and capabilities. As an example: the markets for mobile phones and media players are converging. Congestion effects- When increasing numbers of users lower the value of a product or service. Exchange- what you get and what you give up (trade-off) Every product/service subject to network effects fosters some kind of exchange Wiki-Software: enables people to build an encyclopedia-like website Firms that leverage technology: movies, music, money , video games, computer games Feedback Loops Positive feedback loops- the output of the system reinforces the input Example: The bigger the network, the more developers want in, the more people want to use the applications. negative feedback loop- the output of the system acts to oppose changes in the input of the system Network effects- Also known as Metcalfes Law, or network externalities. When the value of a product or service increases as its number of users expands. Metcalfes Law states that the value of a network grows with the square of the number of users. Value = (Users)^2 Increase barriers to entry a new entrant needs to have more technological functionality than the recumbent switching costs.As well as complementary products &amp; exchange. Oligopoly- A market dominated by a small number of powerful sellers. One-sided market Derive most value from single class of users AIM: IM users attract other IM users Platform Products and services that encourage others to offer complimentary goods Allow for development and integration of software products and other complementary goods Allowing other firms to contribute to your platform can be a brilliant strategy - those firms spend their time and money to enhance your offerings!...
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- Fall '08