MIS Ch 7
Terms in this set (65)
Also known as Metcalfe's Law, or network externalities. When the value of a product or service increases as its number of users expands.
Most products are not subject to network effects. T/F
Presence of network effects influences the choice of one product or service over another. T/F
Network effects are sometimes called _____.
Which of the following summarizes network effects?
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.
_____ refers to the long-term viability of a product or service.
What concept related to staying power is also known by the phrases "being sticky," "creating friction," and "lock-in"?
Which of the following would not considered as contributing to the 'complementary benefits' value of network effects
- books and magazines about the product
- qualified labor skilled in using the product
- third-party apps that work with the product
- hardware that can communicate with and be controlled by the product
Staying power is important in technology industries because technology products such as office suite software, smartphone, laptops, and servers are so pricey.
Which of the following is an economic measure of the full cost of owning a product?
Total cost of ownership
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.
The three sources of value for network effects include __________, staying power, and complementary benefits.
A(n) _____ is the one that derives most of its value from a single class of 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.
Network markets comprised of two distinct categories of participants, both of which are needed to deliver value for the network to work, are called _____.
Benefits derived by interaction among members of a single class of participants are called _____ exchange benefits.
Why is eBay an example of a two-sided network?
buyers attract sellers and vice versa
_____ 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.
A(n) _____ refers to a market 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.
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.
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.
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.
The ability to take advantage of complementary products developed for a prior generation of technology is known as _____.
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.
_____ involves leveraging a firm's customers to promote a product or service.
When two or more markets, once considered distinctly separate, begin to offer similar features and capabilities, they are said to undergo _____.
Which of the following is a strategy for competing in markets with network effects?
Subsidizing product adoption
Apple reduced the switching costs and increased Mac adoptions when the switched from the PowerPC to using Windows-compatible Intel microprocessors.
The phenomenon of____ exists when increasing numbers of users lower the value of a product or service.
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 _______________.
The origins of value:
Products and services subject to network effects foster exchange, which creates value.
- Long-term viability of a product or service.
- Bolstered by networks with greater numbers of users.
incurred when moving from one product to another.
- Directly related to staying power.
- Strengthen the value of network effects as a strategic asset.
- Increases with the higher friction available to prevent users from migrating to a rival.
Total cost of ownership (TCO)
Economic measure of the full cost of owning a product.
Products or services that add additional value to the primary product or service that makes up a network.
Allow for the development and integration of software products and other complementary goods.
Value-adding sources work together to reinforce one another to make the network effect even stronger. T/F
Each add-on of an iOS product enhances the value of choosing it over a rival. T/F
- Market that derives most of its value from a single class of users.
- Same-side exchange benefits: Benefits derived by interaction among members of a single class of participant.
- Network markets comprised of two distinct categories of participant.
- Both need to deliver value for the network to function.
- Cross-side exchange benefit: An increase in the number of users on one side of the market, creating a rise in the other side.
How Are These Markets Different?
- Network markets experience early, fierce competition.
- Caused by positive-feedback loop inherent in network effects.
- Firms are aggressive in the early stages because once a leader becomes clear, new adopters begin to favor the leading product over rivals.
- Tips the market in favor of one dominant firm or standard.
- Markets exhibit monopolistic tendencies.
- One firm dominates all rivals.
Market where there are many buyers but only one dominant seller.
Market dominated by a small number of powerful sellers.
Competing in Markets with Network Effects:
- Move early (Yahoo! Auctions in Japan).
- Subsidize product adoption (PayPal).
- Leverage viral promotion (Skype, Facebook feeds, Uber).
- Expand by redefining the market to bring in new categories of users or through convergence (iPhone).
- Form alliances and partnerships (NYCE vs. Citibank)
When two or more markets, once considered distinctly separate, begin to offer similar features and capabilities.
When one market attempts to conquer a new market by making it a subset, component, or feature of its primary offering.
Competing in Markets with Network Effects (2):
Establish distribution channels (Java with Netscape, Microsoft bundling Media Player with Windows)
Seed the market with complements (Blu-ray, Nintendo)
Encourage the development of complementary goods (Facebook fbFund)
Maintain backward compatibility (Apple's Mac OS X Rosetta translation software for PowerPC to Intel)
Ability to use complementary products developed for a prior generation of technology
Product that allows a firm to use the complementary products, data, or user base of another product or service
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)
Large, established firms:
make preannouncements (Microsoft)
The Osborne Effect:
Firm experiencing a sharp and detrimental drop in the sales of current offerings due to its preannouncement of forthcoming products
Increasing numbers of users to lower the value of a product or service
staying power is important for consumers of technology products because investments over time usually greatly exceeds the intial price paid for a product or service
congestion effects often results when a key resource becomes increasingly scarce with the arrivals of more and more users
Large firms often find new markets attractive, but might not have products ready for delivery. What strategy do such firms use to get potential adopters to delay their purchasing decisions
firms that constantly innovate do so to develop open standards for competitors to become compatible
in a market influenced by network effects, the winning product or service determined by its technical superiority
regional anti-trust authorities may consider product bundling by dominant firms to be anticompetitive
startups firms that find new markets attractive but do not yet have products ready for delivery prenouncce efforts causing potential adaptors to delay a purchasing decision until the new efforts rolls out.
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