S10_NetworkEffect

S10_NetworkEffect - 1 Instructor: Xiaoqing Wang Network...

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Unformatted text preview: 1 Instructor: Xiaoqing Wang Network Effect Global Automobile Industry 2006 Renault 4% Hyundai 4% Nissan 5% Peugeot 5% Honda 6% Ford 7% VW 10% GM 10% Toyota 12% Others 37% 2 Online Music Retailing 2006 iTunes 67% eMusic 11% Rhapsody 4% Others 11% Napster 4% MSN 3% Computer Operating Systems 2009 3 Internet Search Engines 2009 Network Effect Would you switch from MS Word to another desktop word processing application? Why or why not? Would you switch from Facebook to Google Plus? Why or why not? 4 Network Externality/Network Effect Positive Network Effect: Value of a product/service increases as more people uses it Metcalfes Law: The value of a network increases with the square of the number of users Network effects are not the same as economies of scale What is the difference? Demand-side v.s. supply-side economics of scale Direct Network Effects Product or service fosters some kind of exchange: Product is for person-to-person communication telephone, fax machine, email, Instant Messenger Output/information needs to be shared across users Excel, Word, PowerPoint Product is for transactions One sided v.s. two-sided market 5 Indirect Network Effect Value depends on the quality and variety of...
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S10_NetworkEffect - 1 Instructor: Xiaoqing Wang Network...

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