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Stuttgart Media University | Summer Term 2008
EXTERNAL NETWORK-EFFECTS
DOMINIK OSWALD
Integrated Marketing Communication | Stuttgart Media University | Summer Term 2008
2-SIDED-MARKETS
2-sided-markets are defined by some industries which are typically offering a platform for two market participants. These participants are able to collaborate or contract on this specific stage.
Source: Management von Netzwerkeffekten/ Uni Zürich/ Helmut M. Dietl
Chart 2
Integrated Marketing Communication | Stuttgart Media University | Summer Term 2008
WHAT ARE NETWORK-EFFECTS?
Network-Effects are present if the consumer is willing to pay more because of an expected rising number of network participants.
Example: The benefit of the telephone network increases with more consumers having a telephone and being connected with the others. This principle corresponds to the railway system or the internet.
Source: Management von Netzwerkeffekten/ Uni Zürich/ Helmut M. Dietl
Chart 3
Integrated Marketing Communication | Stuttgart Media University | Summer Term 2008
THE IMPACT OF NETWORK-EFFECTS
Marginal costs
Demand
€
AmountCritical mass
Source: Management von Netzwerkeffekten/ Uni Zürich/ Helmut M. Dietl
Chart 4
Integrated Marketing Communication | Stuttgart Media University | Summer Term 2008
TYPES OF NETWORK-EFFECTS
Direct
The consumer benefits directly from the network he belongs
to.
Example: Telephone-Network, File-sharing networks
Indirect/ Extern
The benefit is rising if the size of another connected network
grows.
(= 2-sided-market)
Example: Advertiser - Audience
Source: Medienwirtschaft Sonderheft 2007/ Dr. Ralf Dewenter/ p. 07
Chart 5
Integrated Marketing Communication | Stuttgart Media University | Summer Term 2008
Spiral of Advertisement and Circulation
Chart 6
Integrated Marketing Communication | Stuttgart Media University | Summer Term 2008
INTEGRATION INTO THE MEDIA-SIMULATOR
Chart 7
External Network-Effects are quite difficult to integrate into an holistic plan because their estimations are based on pure experiences. The following abrasive suggestions might help:
• Defining how much markets are involved into the product and generating positive feedbacks between these participants.
• Creating something like a “penguin-scale” where it is possible to estimate the needed amount of critical masses / Demand-Index
• Persuading the “old economy” that network-effects are one of the most important indices to consider in the future / Globalization, etc.
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