Chp20.pdf

Chp20.pdf - Chapter 20 Network Effects Portals and...

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1 Chapter 20. Network Effects, Portals and Economics Table of Contents Introduction to Network Effects, Portals and Economics ...................................................... 2 Context ............................................................................................................... 2 Introduction ......................................................................................................... 2 Objectives ............................................................................................................ 2 Content ....................................................................................................................... 2 Portals ......................................................................................................................... 4 Portals and intermediation .............................................................................................. 4 A Brief History of Portals .............................................................................................. 6 Portal Economics .......................................................................................................... 7 Activities ..................................................................................................................... 9 Activity 1 - Microsoft ............................................................................................ 9 Activity 2 - 'winner' .............................................................................................. 9 Activity 3 - vertical portals ................................................................................... 10 Activity 4 - analogies ........................................................................................... 10 Activity 5 - portals & vertical portals ...................................................................... 10 Activity 6 - loop ................................................................................................. 10 Activity 7 - content ............................................................................................. 10 Activity 8 - links ................................................................................................. 10 Activity 9 - portals .............................................................................................. 11 Review Questions ........................................................................................................ 11 Review Question 1 .............................................................................................. 11 Review Question 2 .............................................................................................. 11 Review Question 3 .............................................................................................. 11 Review Question 4 .............................................................................................. 11 Review Question 5 .............................................................................................. 11 Review Question 6 .............................................................................................. 11 Review Question 7 .............................................................................................. 11 Review Question 8 .............................................................................................. 12 Review Question 9 .............................................................................................. 12 Review Question 10 ............................................................................................ 12 Review Question 11 ............................................................................................ 12 Discussion Topics ....................................................................................................... 12 Answers and Comments ............................................................................................... 12 Activity 1 .......................................................................................................... 12 Activity 2 .......................................................................................................... 12 Activity 3 .......................................................................................................... 12 Activity 4 .......................................................................................................... 13 Activity 5 .......................................................................................................... 13 Activity 6 .......................................................................................................... 13 Activity 7 .......................................................................................................... 13 Activity 8 .......................................................................................................... 13 Activity 9 .......................................................................................................... 13 Review Question 1 .............................................................................................. 14 Review Question 2 .............................................................................................. 14 Review Question 3 .............................................................................................. 14 Review Question 4 .............................................................................................. 14 Review Question 5 .............................................................................................. 14 Review Question 6 .............................................................................................. 14 Review Question 7 .............................................................................................. 14
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Network Effects, Portals and Economics 2 Review Question 8 .............................................................................................. 14 Review Question 9 .............................................................................................. 14 Review Question 10 ............................................................................................ 14 Review Question 11 ............................................................................................ 14 Introduction to Network Effects, Portals and Economics Context This chapter follows on from chapter 19 and develops further the treatment of electronic commerce. Introduction The idea of a 'network effect' or 'network externality' is well known in economics. In this unit, its consequences within a networked environment are explored. Portals have developed as a way of harnessing and controlling (and even exploiting) people accessing the Internet. They are among the items exhibiting a network effect. We examine their emergence and their possible development. We also investigate portal economics, that is, the ways in which portals affect Internet economics, including the ways that the owners of portals can make money. Examples drawn from this rapidly changing area are used to illustrate and explore the relationships between the many factors relating to portals, portal economics and Internet economics in general. Objectives At the end of this module, you should be able to: understand the concept of network effect (or network externality) and explore its consequences in a networked environment; analyse the emergence, reasons for, and possible future development of portals. investigate portal economics. Content Network effects (or network externalities) are exhibited 'when the value of a product to one user depends on how many other users there are'. (Shapiro and Varian, HBS Press, page 13). It is not hard to see that fax machines, telephones, modems and e-mail programs all exhibit network effects. (Imagine the value of the only fax machine in the world to its owner, and then consider the increased possibilities for its use as the number of other fax machines increases.) These products are all communication devices, and their network effects derive from the fact that they only give value when they are attached to a network so that they can take advantage of the connectivity it provides.
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