Mastering Strategy: Network Externalities

1,139 views

Published on

Mastering Strategy: Network Externalities

Published in: Education, Technology, Business
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
1,139
On SlideShare
0
From Embeds
0
Number of Embeds
21
Actions
Shares
0
Downloads
0
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Mastering Strategy: Network Externalities

  1. 1. Financial Times: Mastering StrategyWhy the Network Effect isso Striking?John Paul G. EugenioS17 Economics for ManagersProf. Rachel Cabatowww.jpgeugenio7.blogspot.com
  2. 2. Key Concepts• Network Externalities• Three (3) Network Types• Industry Differences• Five (5) General Strategieswww.jpgeugenio7.blogspot.com
  3. 3. Network Externalities• Also known as “network spillovers” is oneof the most important characteristics ofmany high-technology industries.www.jpgeugenio7.blogspot.com
  4. 4. Network Externalitieswww.jpgeugenio7.blogspot.com• In simplest terms, a product has networkexternalities if the value to any one user riseswith the total number of users who also utilizethat product.
  5. 5. Network Externalities• Also known as “network spillovers” is one ofthe most important characteristics of manyhigh-technology industries.www.jpgeugenio7.blogspot.com• In simplest terms, a product has networkexternalities if the value to any one userrises with the total number of users whoalso utilize that product.
  6. 6. www.jpgeugenio7.blogspot.comThree (3)Network Types
  7. 7. 1. Direct Network• Most commonly associated withtelecommunications products such as thetelephone.www.jpgeugenio7.blogspot.com
  8. 8. 1. Direct Network• Most commonly associated withtelecommunications products such as thetelephone.www.jpgeugenio7.blogspot.com• The network benefit arises from theimportance of direct connections.
  9. 9. 1. Direct Network• Most commonly associated withtelecommunications products such as thetelephone.www.jpgeugenio7.blogspot.com• The network benefit arises from theimportance of direct connections.• The value of a widely used product isgreater than a less widely used one.
  10. 10. 2. Indirect Network• This is what economists would call demandside economies of scale.www.jpgeugenio7.blogspot.com
  11. 11. 2. Indirect Network• This is what economists would call demandside economies of scale.www.jpgeugenio7.blogspot.com• Example is the benefit that arises fromusing a computer system with the biggestnetwork. More Products for Most Users.
  12. 12. 2. Indirect Network• This is what economists would call demandside economies of scale.www.jpgeugenio7.blogspot.com• Example is the benefit that arises from usinga computer system with the biggestnetwork. More Products for Most Users.• Users benefit indirectly from the size of thenetwork.
  13. 13. 3. Learning & Word of Mouth• Unconventional but has similar implications.www.jpgeugenio7.blogspot.com
  14. 14. 3. Learning & Word of Mouth• Unconventional but has similar implications.www.jpgeugenio7.blogspot.com• The bigger the network of people using aproduct, the easier it is to find outinformation about the goods or learn howto use them effectively.
  15. 15. 3. Learning & Word of Mouth• Unconventional but has similar implications.www.jpgeugenio7.blogspot.com• The bigger the network of people using aproduct, the easier it is to find outinformation about the goods or learn how touse them effectively.• Word of mouth effect is especially importantfor internet businesses.
  16. 16. Industry Differences• The main distinction between networkindustries and “normal” industries is thatthe former are much more likely to bedominated by a single company or standard.www.jpgeugenio7.blogspot.com• The bottom line is that you do not want tobe playing “catch-up” in a network industry.
  17. 17. www.jpgeugenio7.blogspot.comFive (5) GeneralStrategies
  18. 18. 1. SPEED• First and most important strategy is exploitingfirst mover advantages.www.jpgeugenio7.blogspot.com
  19. 19. 1. SPEED• First and most important strategy is exploitingfirst mover advantages.www.jpgeugenio7.blogspot.com• The value of their product will be that muchhigher for potential new customers.
  20. 20. 1. SPEED• First and most important strategy is exploitingfirst mover advantages.www.jpgeugenio7.blogspot.com• The value of their product will be that muchhigher for potential new customers.• Getting patents,trademarks, andprized domainnames are integralto this strategy.
  21. 21. 1. SPEED• First and most important strategy is exploitingfirst mover advantages.www.jpgeugenio7.blogspot.com• The value of their product will be that muchhigher for potential new customers.• Getting patents, trademarks, and prizeddomain names are integral to this strategy.• In the new economy there are only 2 kinds ofcompanies: the Quick and the Dead.
  22. 22. 1. SPEEDwww.jpgeugenio7.blogspot.com
  23. 23. 1. SPEEDwww.jpgeugenio7.blogspot.comSamsung wins ITC patent ruling against AppleWednesday 5 June 2013 | 08:36 CET | News The US International Trade Commission(ITC) has ruled that Apple infringed on a Samsung patent involving the ability of devicesto transmit multiple services through 3G technology, resulting in a ban on theimportation or sale in the US of the iPhone 3GS, iPhone 4, iPad 3G and iPad 2 3G byAT&T, Reuters reports. President Obama has 60 days to decide whether to veto theruling.While the products are over a year old, some models, including the iPhone 4 are stillselling strongly. The ruling overturned a September 2012 decision by ITC judge JamesGildea, who had found that Apple did not infringe on patents at issue. The ITC foundthat Apple did not violate three other Samsung patents.Apple said the decision had no impact on its products availability in the US and that itwould appeal the decision. Samsung welcomed the ruling, saying it “confirmed Apple’shistory of free-riding on Samsung’s technological innovations”.http://www.telecompaper.com/news/samsung-wins-itc-patent-ruling-against-apple--947656
  24. 24. 2. BUZZ• If a company can convince customers that’s itsproduct will be the most widely accepted, thiswill tend to be self fulfilling.www.jpgeugenio7.blogspot.com
  25. 25. 2. BUZZ• If a company can convince customers that’s itsproduct will be the most widely accepted, thiswill tend to be self fulfilling.www.jpgeugenio7.blogspot.com• This is where the“BUZZ” comes in.
  26. 26. 2. BUZZ• If a company can convince customers that’s itsproduct will be the most widely accepted, thiswill tend to be self fulfilling.www.jpgeugenio7.blogspot.com• This is where the “BUZZ” comes in.• Generating consumer“buzz” is a perfectlyviable means ofsucceeding in anetwork industry.
  27. 27. 2. BUZZ• If a company can convince customers that’s itsproduct will be the most widely accepted, thiswill tend to be self fulfilling.www.jpgeugenio7.blogspot.com• This is where the “BUZZ” comes in.• Generating consumer “buzz” is aperfectly viable means ofsucceeding in a network industry.• Buzz is also a weapon used by incumbentsthreatened by challengers.
  28. 28. 2. BUZZwww.jpgeugenio7.blogspot.comiOS 7Apple CEO Tim Cook touted iOS 7 as “the biggest change to iOS since theintroduction of the iPhone.” And it’s true. All the icons are still there in the familiargrid, but all the felt and wood-grain design elements have been taken out to pasture.Everything looks far more modern than it did before, and it’s all presented in aflatter, more layered interface.Read more: http://techland.time.com/2013/06/10/apple-unveils-new-version-of-os-x-new-computers-and-ios-7/#ixzz2Vqxz2sDD
  29. 29. 2. BUZZwww.jpgeugenio7.blogspot.comSamsung has just announced that the Galaxy Tab 3 will be coming in two more variants. Whilewe have already seen the 7-inch version, the company said that two new 8-inch and 10.1-inchversions will be coming to markets around the globe in the beginning of June.http://gadgets.ndtv.com/tablets/news/samsung-galaxy-tab-3-8-inch-and-101-inch-versions-officially-announced-374699
  30. 30. 3. EARLY ADOPTERS• Since the name of thegame in a networkindustry is getting peopleto adopt in order toinfluence others, why notlook for the mostinfluential people you canfind?www.jpgeugenio7.blogspot.com
  31. 31. 3. EARLY ADOPTERSwww.jpgeugenio7.blogspot.com
  32. 32. 3. EARLY ADOPTERSwww.jpgeugenio7.blogspot.com
  33. 33. 4. PRICING AND QUALITY• Standard strategy in an industry with networkexternalities is similar to that in an industrywith large economies of scale.www.jpgeugenio7.blogspot.com
  34. 34. 4. PRICING AND QUALITY• Standard strategy in an industry with networkexternalities is similar to that in an industrywith large economies of scale.www.jpgeugenio7.blogspot.com• It is penetrationpricing. But its“risky”.
  35. 35. 4. PRICING AND QUALITY• Standard strategy in an industry with networkexternalities is similar to that in an industrywith large economies of scale.www.jpgeugenio7.blogspot.com• It is penetration pricing. But its “risky”.• A great benefit to doing a better job buildingthe product – either better quality for thesame price, or lower manufacturing costs forthe same quality.
  36. 36. 4. PRICING AND QUALITYwww.jpgeugenio7.blogspot.com
  37. 37. 4. PRICING AND QUALITYwww.jpgeugenio7.blogspot.com
  38. 38. 5. ALLIANCES• Since the companies in this area areeffectively trying to set standards, it helps tohave powerful allies when making strategicdecisions.www.jpgeugenio7.blogspot.com
  39. 39. 5. ALLIANCES• Since the companies in this area are effectivelytrying to set standards, it helps to havepowerful allies when making strategicdecisions.www.jpgeugenio7.blogspot.com• When making alliances,though, it is also importantto try to turncomplementary productsinto commodities.
  40. 40. 5. ALLIANCESwww.jpgeugenio7.blogspot.com
  41. 41. 5. ALLIANCESwww.jpgeugenio7.blogspot.com
  42. 42. Key Concepts• Network Externalities• Three (3) Network Types• Industry Differences• Five (5) General Strategieswww.jpgeugenio7.blogspot.com
  43. 43. Financial Times: Mastering StrategyWhy the Network Effect isso Striking?John Paul G. EugenioS17 Economics for ManagersProf. Rachel Cabatowww.jpgeugenio7.blogspot.com

×