Chapters 6 and 7

Chapters 6 and 7 - Chapters 6 and 7 Network effects: When...

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Chapters 6 and 7 Network effects : When the value of a product or service increases as its number of users expands Also known as network externalities or Metcalfe’s Law When network effects are present: The value of a product or service increases as the number of users grows They’re among the most important reasons you’ll pick one product or service over another. The value derived from network effects comes from three sources: Exchange: Exchange creates value and every product or service subject to network effects fosters some kind of exchange Staying power: The long-term viability of a product or service Networks with greater numbers of users suggest a stronger staying power Complementary benefits : Products or services that add additional value to the network. The three value-adding sources often work together to reinforce one another in a way that makes the network effect even stronger: When users exchanging information attract more users, they can also attract firms offering complementary products When developers of complementary products invest time writing software switching costs are created that enhance the staying power of a given network. One-sided markets A market that derives most of its value from a single class of users Have same-side exchange benefits; these benefits derived by interaction among members of a single class of participant.
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Two-sided markets Network markets comprised of two distinct categories of participant, both of which that are needed to
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This note was uploaded on 03/02/2011 for the course BMGT 301 taught by Professor Wang during the Spring '08 term at Maryland.

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Chapters 6 and 7 - Chapters 6 and 7 Network effects: When...

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