Ch 4: The Changing Competitive Environment

Question 1

Positive feedback, and its network economics impact

Answer 1

Positive feedback is a well-known economic phenomenon at the heart, for example, of economies of scale. A larger company can spread its fixed costs across a larger product volume (reducing prices). The stronger firm gets stronger and continues to grow while the weaker firm gets increasingly weaker.

Question 2

Network Effects (how value is created in networks)

Answer 2

Network effects occur when a new node (e.g., a new Skype user), while pursuing his or her own economic motives, creates value for all the other members of the network by making the network larger, and thus more valuable. (Book example: Skype users recruiting friends to join)

Question 3

Tippy market / Tipping Point

Answer 3

Tippy Market: A market that is subject to strong positive feedback, such that the market will “tip” in favor of the firm that is able to reach critical mass and dominate it. “Winner-take-all” tendencies.

Tipping Point: The watershed of dominance. The tipping point is that moment in the evolution of a market where one organization or technology reaches critical mass and goes on to dominate it - the point of no return where winners and losers are defined.

Question 4

Tipping Point with Sony/Toshiba rivalry as a case study

Answer 4

Traditionally, the onset of the tipping point would take time. The tipping point between Sony’s Blue-Ray and Toshiba’s HD-DVD played out much more quickly… and Sony came out on top this time.

Question 5

Two-sided networks

Answer 5

Networks that have two types of members, each creating value for the other. In a two-sided network, the value of the network to one type of member depends on the number of members from the other side that take part in the network. (Example: Adobe; as the number of users grew, fueled by some early adopters of the authoring software, organizations that produce and publish documents decided to adopt Adobe Acrobat)

Question 6

Reach / Richness

Answer 6

Reach: The number of possible recipients of the message.

Richness: the amount of information that can be transmitted, the degree to which the information can be tailored to individual needs, and the level of interactivity of the message.

Question 7

Reach / Richness - Traditional Tradeoff

Answer 7

Traditionally, as information has been constrained by its physical carrier, a firm would have to make a trade-off decision between the number of people it wanted to communicate a message to (i.e., reach) and the depth of the message (i.e., richness)

Question 8

How has the internet affected the tradeoff between reach / richness?

Answer 8

With the advent and widespread adoption of a cheaply and easily accessible information infrastructure, such as the Internet and the services it makes available, these constraints are increasingly being lifted.Ubiquitous communication networks and powerful computers are quickly enabling firms to decouple information from the physical objects that traditionally carried it. This new technology makes it possible to reach many people with more information-intensive, interactive, and personalized messages. (still a compromise between reach and richness).