The document discusses network effects, first mover advantage, and strategies for competing in markets with demand side increasing returns. Network effects occur when the value of a product increases as more users use it, like a telephone network. First mover advantage refers to the benefits enjoyed by the initial company to enter a market. Industries with demand side increasing returns are prone to "winner-take-all" outcomes, where one company dominates. Strategies for competing include gaining a large installed base early on to benefit from positive feedback loops and tipping points that reinforce the leading position.
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Network Effects And Dsir
1. What is: “network effect”? “First mover advantage”?
2. Network Era Is Being Driven by the Interaction of Three 'Laws' more computing power More-valuable networks more communication bandwidth Moore’s Law Metcalfe’s Law Gilder’s Law Source: Prof. N. Venkatraman, Boston University Moore’s Law Metcalfe’s Law Gilder’s Law
3. Demand Side Increasing Returns Network Effect Network Effects occur when the benefits of a product increase to each user as the number of users increases. An example of network effects is telephone service. The more people who use them the more valuable they are to each user. The Web is an example with even more rapidly increasing DSIR than telephones or fax machines. Industries with Demand Side Increasing Returns have the characteristics of “winner takes all”. Many of the Web based industry exhibit this characteristic, example: eBay and more recently the social networking sites such as Facebook. Source: www.wikipedia.com
4. Positive Feedback loop creates “winner takes all” Base of users Attracts new users Gets a larger share of new purchases Installed base grows
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8. Strategies for competing in markets with DSIR http://web2.socialcomputingmagazine.com/ Strategies in the Web 2.0 world
