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G4-[PR] Ch2. Network Effects (negative network effect (ChatRoulette (no…
G4-[PR] Ch2. Network
Effects
Four kinds of Network effects
Same-side effects
Positive
the same kind increased
Users
Producer
Negative
downside to the numbers growth on one side of a platform
Cross-side effects
Positive
benefit from an increase in the number of participants on other side of market
Negative
leading consumers to abandon the platform or reduce the platform user
negative network effect
the growth of consumers and producers
hard to find the most suitable one
curation
OKCupid
B level men bombard A level women
A level women quit the platform
B level men can't get the responds
A level men are unhappy
curation strategy
compatible interests
Do both parties smoke?
comparative attractiveness
algorithm determines whether B level men match A level women
data↑
inferences accuracy↑
data-driven network effects
inferences of value↑
ChatRoulette
no registration
no controls
Naked Hairy Men
legitimate users fled
let users filter other users by itself
use algorithms to screen callers undesirable
network effect
Metcalfe's law
positive network effect
eg.uber
prospective market share
global taxi market
revenues
risk-adjusted cash flows
negative network effect
eg.blackbeery
supply economies of scale
production efficiencies
eg.bessemer process
reduce cost
product or service increase
be derail by
government intervention
disruptive technological
demand economies of scale
technological improvement
app development
bigger networks more valuable to their users
Structural Change:Network effects turn firms inside out
Internet Era
demand-side economies of scale
Firms such as Airbnb, Uber, Dropbox, Threadless, Upwork, Google and Facebook
Four broad categories based on their chief economic activity
asset builders
Eg.Ford, Walmart
service providers
Eg. United Healthcare, Accenture
technology creators
Eg, Microsoft , amgen
network orchestrators
Platform Business
Network effects
the firms turn inside out
management of human resources
innovation
primary venue for activities
create the giants of the 21st century;eg.Facebook, Google
Industrial Era
supply-side economies of scale
frictionless entry and other scalability tools
Yahoo
started out as a human-edited
Internet users and web page producers increased
do not scale well
Google
more links from more important pages
frictionless entry
it means: quickly join a platform and participate the value creation
side switching effect
new drivers from among its rider pool
new hosts from among its guest pool
both sides of the market grow
one side becomes large
discounting
doupons
Two-sided network effects
with positive feedbacks
Google's android
Upwork
Uber
PayPal
Metcalfe's telephone
one-sided market
two-sided market
Network effects versus others growth-building tools
growth-building tools
price effects
attracting customers through extraordinarily low pricing
evanescent
disappear when the discount end
other frim offers a better price
via discounting and couponing
brand effects
like price effects
difficult to sustain
stickier
extremely expensive
eg. E Toys
eg. Kozmo
network effects
create the virtuous circle
virality
brand to be circulated rapidly
widely from one internet user to another
tendency of an idea
attract people to network
