Network effects are sometimes called Show Metcalfe's Law Network effects are also known as Metcalfe's law, or network externalities, and this concept has been leveraged by many technology firms to build massive user bases. Which of the following summarizes network effects? More users = more value When network effects are present, the value of a product or service increases as the number of users grows. Simply, more users = more value. In the context of network effects, the term "network" refers to: a common user base, utilized to communicate and share with one another. A network doesn't refer to the physical wires or wireless systems that connect pieces of electronics. It just refers to a common user base that is able to communicate and share with one another. he three sources of value for network effects include __________, staying power, and complementary benefits. Exchange The value derived from network effects comes from three sources: exchange, staying power, and complementary benefits. _____ refers to the long-term viability of a product or service. Staying Power Staying power, along with complementary benefits and exchange, gives value to network effects. It refers to the long-term viability of a product or service. Staying power is important in technology industries because technology products such as office suite software, smartphone, laptops, and servers are so pricey. False Staying power is important for consumers of technology products because investment over time usually greatly exceeds the initial price paid for a product or service. A user invests in learning how to use a system, buying and installing software, entering preferences or other data, creating files-all of which mean that if a product isn't supported anymore, much of this investment is lost. What concept related to staying power is also known by the phrases "being sticky," "creating friction," and "lock-in"? Switching Costs Switching costs also go by other names. You might hear the business press refer to products as being "sticky" or creating "friction." Others may refer to the concept of "lock-in." The concept of staying power is directly related to switching costs. Which of the following is an economic measure of the full cost of owning a product? Total Cost of Ownership Total cost of ownership is an economic measure of the full cost of owning a product. It includes direct costs such as purchase price, plus indirect costs such as training, support, and maintenance. Products and services that can be considered to be a 'platform' allow for the development and integration of software products and other complementary goods are known. True Products and services that encourage others to offer complementary goods are sometimes called platforms. Allowing other firms to contribute to your platform can be a brilliant strategy because those firms will spend their time and money to enhance your offerings. One way firms seek to strengthen their platforms and encourage third parties to develop complementary goods is by: offering APIs Products and services that encourage others to offer complementary goods are sometimes called platforms. Many firms do this by providing APIs, or Application Programming Interfaces, that allow third parties to integrate with their products and services. Which of the following would not considered as contributing to the 'complementary benefits' value of network effects None of the above Complementary benefits are those products or services that add additional value to the network. These products might include "how-to" books, software, and feature add-ons, even labor. Hardware products that can plug into a 'platform', such as speakers or even automobile integration (Apple CarPlay) are complementary benefits that enhance the value of the primary product or service offer. A(n) _____ is the one that derives most of its value from a single class of users. One-sided market A one-sided market is the one that derives most of its value from a single class of users. Benefits derived by interaction among members of a single class of participants are called _____ exchange benefits. Same Side Benefits derived by interaction among members of a single class of participants are called same-side exchange benefits. An example of same-side exchange benefits is the network effects derived from existing IM users attracting more IM users. An increase in the number of subscribers of yellow pages creates a rise in the number of advertisers. This is an example of _____ exchange benefits. Cross side When an increase in the number of users on one side of the market (say video game console owners) creates a rise in the other side (software developers), that's called a cross-side exchange benefit. Why is eBay an example of a two-sided network? buyers attract sellers and vice versa two-sided markets are network markets comprised of two distinct categories of participant, both of which that are needed to deliver value for the network to work. At eBay for transactions to work the market needs both buyers and sellers, and each category attracts the other. Network markets comprised of two distinct categories of participants, both of which are needed to deliver value for the network to work, are called _____. two sided markets Network markets comprised of two distinct categories of participants, both of which are needed to deliver value for the network to work are called two-sided markets. People buy a video game console largely based on the number of really great games available for the system. Software developers write games based on their ability to reach the greatest number of paying customers, and so they are most likely to write for the most popular consoles first. This results in the creation of a two-sided market. A(n) _____ refers to a market dominated by a small number of powerful sellers. oligopoly An oligopoly is a market which is dominated by a small number of powerful sellers. When network effects are strong, the best (e.g. the highest quality or most superior product) does not necessarily when. True It's important to note that the best product or service doesn't always win. PlayStation 2 dominated the original Xbox in a prior generation's game console war, despite the fact that nearly every review claimed the Xbox was hands-down a more technically superior machine. Why were users willing to choose an inferior product (PS2) over a superior one (Xbox)? The power of network effects! PS2 had more users, which attracted more developers offering more games. _____ refer(s) to competing by offering a superior generation of technology that is so much greater to existing offerings that the value overcomes the total resistance that older technologies might enjoy via exchange, switching cost, and complementary benefits. Technological leapfrogging Technological leapfrogging involves competing by offering a new technology that is superior to existing offerings. Therefore, the value overcomes the total resistance that older technologies might enjoy via exchange, switching cost, and complementary benefits. The bread of devices running iOS, and the various versions of the fragmented iOS operating system present a far greater challenge for developers than the fairly unified Android standard. False Android devices with different hardware specs running different versions of Google's mobile operating system create a challenge for developers. As an example, consider thant Hong Kong mobile app developer Animoca does quality assurance testing with about four hundred Android devices on every app the firm offers Which statement best describes the relationship between network effects and innovation? Network effects increase innovation within a standard but decrease the number of innovative offerings that compete against a strongly established standard. While network effects limit competition against the dominant standard, innovation within a standard may actually blossom. New firms see little incentive to compete with a product challenging the dominance of Microsoft Windows, however developers will be attracted to write applications for the Windows standard, since their work would be able to run on software owned by millions of users worldwide. Which of the following is a strategy for competing in markets with network effects? Subsidizing product adoption In one admittedly risky strategy, firms may offer to subsidize initial adoption in hopes that network effects might kick in shortly after. _____ involves leveraging a firm's customers to promote a product or service. Viral promotion Since all products and services foster some sort of exchange, it's often possible to leverage a firm's customers to promote the product or service using viral promotion. The phrase ________________ refers to the positive influence created when someone finds out that others are doing something. Social proof PayPal and Uber are firms that have both used these incentives as trust proxies, or what is sometimes referred to as social proof. When a friend sends an invite to a service where users may otherwise have trust concerns (e.g., PayPal and sharing of financial information, Uber and stepping into a car driven by a stranger), an endorsement by a friend can ease concerns. A company using a(n) _____ strategy would seek to create and compete in uncontested market spaces, rather than competing in spaces and ways that have attracted many, similar rivals. Blue Ocean According to the blue ocean strategy, instead of competing in blood-red waters where the sharks of highly competitive firms vie for every available market scrap, firms should seek the blue waters of uncontested, new market spaces. Envelopment is a strategy in which a firm seeks to: conquer a new market by making it a subset, component, or feature of its primary offering. In envelopment, a firm seeks to conquer a new market by making it a subset, component or feature of its primary offering. When two or more markets, once considered distinctly separate, begin to offer similar features and capabilities, they are said to undergo _____. convergence When two or more markets, once considered distinctly separate, begin to offer similar features and capabilities, they are said to undergo convergence. Market expansion sometimes creates rivals, who previously did not compete on a collision course, as markets undergo convergence. The ability to take advantage of complementary products developed for a prior generation of technology is known as _____. backward compatibility Backward compatibility refers to the ability of a firm to take advantage of complementary products developed for a prior generation of technology. Those firms that control a standard should ensure that new products have backward compatibility with earlier offerings. If not, they re-enter a market at installed-base zero and give up a major source of advantage-the switching costs built up by prior customers. Apple reduced the switching costs and increased Mac adoptions when the switched from the PowerPC to using Windows-compatible Intel microprocessors. True Since Intel is the same standard used by Windows, Apple developed a free software adaptor called Boot Camp that allowed Windows to be installed on Macs. Boot Camp (and similar solutions by other vendors) dramatically lowered the cost for Windows users to switch to Macs. Within two years of making the switch, Mac sales skyrocketed to record levels. The phenomenon of ________________________________________ exists when increasing numbers of users lower the value of a product or service. Congestion effects Congestion effects occur when increasing numbers of users lower the value of a product or service. This most often happens when a key resource becomes increasingly scarce. You are at a packed stadium for the big game and you want to upload a photo of your team's touchdown using Instagram. Your mobile phone shows five bars of service, but you still can't access the Internet. This is likely an example of _______________. Congestion effects Congestion effects occur when increasing numbers of users lower the value of a product or service. This most often happens when a key resource becomes increasingly scarce. In this case, the constrained resource is the carrying capacity of nearby cell phone towers. When network effects are present the value of a product or service increases?When network effects are present, the value of a product or service increases as the number of users grows. Simply, more users = more value. In the context of network effects, the term "network" refers to: a common user base, utilized to communicate and share with one another.
What is the network effect called?In economics, a network effect (also called network externality or demand-side economies of scale) is the phenomenon by which the value or utility a user derives from a good or service depends on the number of users of compatible products.
What is a product with a network effect?Examples of Network Effects
E-Commerce: eBay, Etsy, Amazon, Alibaba. Ticket Exchange: StubHub, Ticketmaster, SeatGeek. Rideshare: Uber, Lyft. Delivery: Grubhub, DoorDash, Uber Eats, Instacart, Postmates. Social Media: Facebook, Twitter, Instagram, LinkedIn, Snapchat, Pinterest.
What is network effect in marketing?The network effect refers to the concept that the value of a product or service increases when the number of people who use that product or service increases.
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When network effects are present the value of a product or service decreases as the number of users grows?
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