Network strategy Flashcards
What is ‘networks’?
Networks are business relationships with multiple participants, both firms and individuals
What is the role of platforms in markets?
Platforms mediate markets where users’ interactions with each other are subject to network externalities (Gawer and Cusumano, 2002; Eisenmann et al., 2011)
What is network externalities?
Network externalities (or effects) exist when the value of a good to a user increases with the number of _other user_s of the same or similar good!
What is an ecosystem?
Ecosystems describe the wider network including suppliers and competitors!
Give a few examples of Networks
Android, Apple, windows etc.
What is shown on this picture? (What is it an example of)
The smartphone ecosystem
What does it mean that a business is two-sided?
- The business engages with multiple customer groups at the same time (the transaction involves 3 or more parties to be complete)
- The critical question is: do the customer groups interact or not?! In other words: Are there direct contact between buyer and seller (if not then it is a platform)
For each of these businesses decide whether they are examples of Platforms or Markets
In one sentence, what is ‘Increasing Returns to Adoption (IRA)’?
The more a product is adopted, the more new adopters have an incentive to adopt this product
Increasing Returns to Adoption (IRA) has two sides. What are these?
Supply side and demand side
Explain the demand side og IRA
- Increasing utility to users (left)
- Increasing availability of complementary goods (right)
Explain the supply side of IRA
What is the The virtuous cycle?
A complex chain of events which reinforce themselves through a feedback loop.
Based on the virtuous circle, Illustrate the probability that the next consumer chooses to buy a certain product
What industry was used to illustrate in class?
Mobile operating systems
+
Apple versus Samsung
When exercising a network strategy, the outcome is dependent on three factors. What are these?
- The strength of the Increasing Returns to Adoption
- Switching costs to move across competing products
- The level of product differentiation among competing products
Why is the winner who takes all not safe?
Because of Platform envelopment:
Due to network effects and switching costs in platform markets, entrants generally must offer revolutionary functionality. HOWEVER, a second entry path that does not rely upon innovation is platform envelopment. Through envelopment, a provider in one platform market can enter another platform market, combining its own functionality with the target’s in a multi-platform bundle that leverages shared user relationships. The firm can use bundling for economies of scope and price discrimination and in addition use strategic management of the firm’s user network. Envelopers capture share by foreclosing an incumbent’s access to users; in doing so, they harness the network effects that previously had protected the incumbent.
Example: RealNetworks and Microsoft:
RealNetworks are pioneers in the streaming media markets and broadcast one of the earlier audio events over the Internet. Despite their success, problems arose because Real’s primary business model depended upon the sale of streaming mediaserver software, and Microsoft and Apple were giving those products away. As servers from Microsoft and Apple became more capable, Real’s server sales inevitably eroded
