Network effects

Network Effects

Aisha, Shari, Luz & Nabila

• What is Network Effect• Examples• Types of network effect

• Direct • Indirect• Two sided

• Social network effect• Bandwagon effect• Positive feedback loop

• Positive network effects• Negative network effect• Websites

Network Effects?

In its simplest form it refers to an

environment where an increase in

adoption and/or usage creates more

value for all participants in a

social community or network.

http://ezinearticles.com/?Network-Effects-in-the-Web-2.0-Economy&id=1505581

Examples

A classic example is the telephone. The

more people that own

telephones, the more valuable

the telephone is to each owner.

Online social networks work

in the same way, with websites

like Twitter and Facebook.

http://en.wikipedia.org/wiki/Network_effect

Types...

There are several types of network effects, these are:

• Direct• Indirect• Social• Two-sided

Direct effect

Indirect effect

Direct Network Effects

Occurs when the product or service value increases the more people use it.

For example Microsoft


Indirect Network EffectsOccurs when increases in the use of a product or service creates increased value for complimentary products resulting in added value for the original product or service.

For example Google


Two Sided Network Effects

Occurs when an increase in use by one group of users increases the value of a complementary product or service in a completely different set of users.

For example the relationship between gaming platform releases and the sale of gaming software.


http://en.wikipedia.org/wiki/File:2sidedmarketdiagram.gif

Social Network Effects

Occurs when groups of people come together in the online world


Bandwagon effectIs the idea that people often do and believe things merely because many other people do and believe the same things. The general rule is that conduct or beliefs spread among people, as fads and trends clearly do, with "the probability of any individual adopting it increasing with the proportion who have already done so". As more people come to believe in something, others also "hop on the bandwagon" regardless of evidence.

http://en.wikipedia.org/wiki/Bandwagon_effect

Positive Feedback LoopThis is the idea that ‘A produces more of B, which in turn produces more of A’.

Positive Network Effects

• More people means more interaction

Negative Network effects

• Negative network effects result from resource limits

Websites• Websites also feature a

network effect •

Technology

Network effects