40 terms

BMGT301 Chapter 8

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network effects
also known as Metcalfe's law, or network externalities, and this concept has been leveraged by many technology firms to build massive user bases.
When the value of a product or service increases as its number of users expands.
among the most important reasons you will pick one product or service over another
more users= more value
network
a common user base, utilized to communicate and share with one another
three sources of value for network effects
exchange, staying power, complementary benefits
exchange
trading or transfer
staying power
long term viability of a product or service, investment over time usually greatly exceeds the initial price paid for a product or service
switching costs
complementary benefits
product or services that add additional value to the primary product or service that make up a network
switching costs
What concept related to staying power is also known by the phrases "being sticky," "creating friction," and "lock-in"
total cost of ownership
economic measure of the full cost of owning a product?
platforms
allow for the development and integration of software products and other complementary goods
offering APIs
One way firms seek to strengthen their platforms and encourage third parties to develop complementary goods is by
APIs
allow third parties to integrate with their products and services
one sided market
Market that derives most of its value from a single class of users
Same-side exchange benefits
two sided market
Network markets comprised of two distinct categories of participant (Both need to deliver value for the network to function)
Cross-side exchange benefit
ebay because buyers attract sellers and vice versa
same side exchange benefits
Benefits derived by interaction among members of a single class of participant
network effects derived from existing IM users attracting more IM users
cross side exchange benefits
An increase in the number of users on one side of the market, creating a rise in the other side
An increase in the number of subscribers of yellow pages creates a rise in the number of advertisers
oligopoly
Market dominated by a small number of powerful sellers
monopoly
Market where there are many buyers but only one dominant seller
markers exhibit these tendencies
true
When network effects are strong, the best (e.g. the highest quality or most superior product) does not necessarily when (t/f)
technological leapfrogging
refer 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
difficult
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
move early
Being first allows your firm to start the network effects snowball rolling in your direction, Yahoo! Auctions in Japan
subsidize product adoption
might include a price reduction, rebate, or other giveaways, paypal
Leverage viral promotion
Skype; Facebook feeds; Uber
involves leveraging a firm's customers to promote a product or service
Expand by redefining the market
redefine the space to bring in more users, iPod,iTunes, iPhone, iPad, App Store, iWatch
convergence
When two or more markets, once considered distinctly separate, begin to offer similar features and capabilities
Envelopment
When one market attempts to conquer a new market by making it a subset, component, or feature of its primary offering
Alliances and partnerships
use these to grow market share for a network. Sometimes these efforts bring rivals together to take out a leader. NYCE vs. Citibank
Distribution channels
novel ways to distribute a product or service to consumers, Java with Netscape; Microsoft bundling Media Player with Windows
Seed the market
Giving away products for half of a two-sided market is an extreme example of this kind of behavior, Blu-ray, Nintendo, PlayStation
Encourage the development of complementary goods
involve some form of developer subsidy or other free or discounted service. A firm may charge lower royalties or offer a period of royalty-free licensing, Facebook fbFund, Platforms and APIs
Maintain backward compatibility
Apple's Mac OS X Rosetta translation software for PowerPC to Intel
Backward compatibility
Ability to use complementary products developed for a prior generation of technology
Adaptor
Product that allows a firm to use the complementary products, data, or user base of another product or service
Rivals maintain compatibility with larger networks
Apple's move to Intel
close off rival access and constantly innovate
Apple's efforts to block access to its own systems
make preannouncements
Large firms that find new markets attractive but don't yet have products ready for delivery might make these in order to cause potential adaptors to sit on the fence, delaying a purchasing decision until the new effort rolls out, microsoft, apple watch
The Osborne Effect
Firm experiencing a sharp and detrimental drop in the sales of current offerings due to its preannouncement of forthcoming products
Congestion effects
Increasing numbers of users can lower the value of a product or service
social proof
refers to the positive influence created when someone finds out that others are doing something
blue ocean
strategy would seek to create and compete in uncontested market spaces, rather than competing in spaces and ways that have attracted many, similar rivals.