16 terms

Chapter 8: Network Effects

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Network Effects
Occur when the value of a product or service increases as its number of users grows.
When present, Network Effects are among the most
important reasons you will pick one product or service over another
Value from Network Effects comes from 3 sources
exchange, staying power, complementary message
Exchange
Every product or service subject to network effects fosters some kind of exchange
Long Term Viability
Networks with greater numbers of users suggest a stronger staying power
Switching costs
The cost a consumer incurs when moving from one product to another
Switching costs can strengthen the
value of network effects as a strategic asset
The higher the value of the user's overall investment,
the more they're likely to consider the staying power of any offering before choosing to adopt it.
Complementary benefits
Products or services that add additional value to the primary product or service that makes up a network
TCO (total cost of ownership)
An economic measure of the full cost of owning a product
TCO includes
direct and indirect costs
Technological Leap-frogging
Competing by offering a new technology that is so superior to existing offerings
The value of the new technology must overcome
total resistance that older technologies might enjoy
Strategies for competing in markets w network effects
move early, subsidize product adoption, leverage viral promotion, redefine market or converge, alliances, distribution channels
The only way to compete with firms that have a network effect is
technological leap frogging
Blue ocean strategy
new area not addressed by sharks