Forum #3
Discussion Question:
1. How can network effects (NE) influence the fate of a technology? 2. Discuss potential positive AND negative influencesof NE providing specificexamples.
Answering Case Questions:
Responses which are purely opinion and anecdotal are not considered to be substantive in nature.
Each question responseshould provide depth of analysis, significant insight, and application toat least one course concept. !!!
MAKE IT EASYto find your different responsesby using a heading for each question (e.g., Question 1, Question 2).
DO NOTmix responses together.
Review the “Discussion Forum Guide” for details the use of external sources.
A Turnitin score of 20% or less is required.Submit to Turnitin Check link first.
DIRECTIONS:
1. review course material attached.
2. add at least two references from the course material AND cite THEM
3. ATTACH Plagiarism check
4. REVIEW discussion forum guide before sending it back.
Information Systems: A Managers Guide to Harnessing Technology
By John Gallaugher
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CHAPTER 6
Understanding Network Effects: Strategies for Competing in a Platform-Centric, Winner-Take-All World
LEARNING OBJECTIVE I
Define network effects.
Recognize products and services that are subject to network effects.
Understand the factors that add value to products and services that are subject to network effects.
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NETWORK EFFECTS
the value of a product or service increases as its number of users expands
Also referred to as network externalities or Metcalfes Law.
Most products are not subject to network effects.
Presence of network effects influences the choice of one product or service over another.
LEARNING OBJECTIVE II
Identify the three primary sources of value for network effects.
Recognize factors that contribute to the staying power and complementary benefits of a product or service subject to network effects.
Understand how firms like Microsoft and Apple each benefit from strong network effects.
SOURCES OF NETWORK EFFECT I
A network becomes more valuable because its users can potentially communicate with more people, thus, the importance ofexchangein creating value.
Every product or service subject to network effects fosters some kind of exchange.
For firms leveraging technology, this might include anything you can represent in the ones and zeros of digital storage, such as messaging, movies, music, money, video games, and computer programs.
SOURCES OF NETWORK EFFECT II
Products and services subject to network effects foster exchange, which creates value.
Staying power: Long-term viability of a product or service.
Bolstered by networks with greater numbers of users.
Switching costs: incurred when moving from one product to another.
Directly related to staying power.
Strengthen the value of network effects as a strategic asset.
Increases with the higher friction available to prevent users from migrating to a rival.
Total cost of ownership (TCO): Economic measure of the full cost of owning a product.
SOURCES OF NETWORK EFFECT III
Complementary benefits: Products or services that add additional value to the primary product or service that makes up a network.
Platforms: Allow for the development and integration of software products and other complementary goods.
Value-adding sources work together to reinforce one another to make the network effect even stronger.
Each add-on of an iOS product enhances the value of choosing it over a rival.
LEARNING OBJECTIVE III
Recognize and distinguish between one-sided and two-sided markets.
Understand same-side and cross-side exchange benefits.
UNDERSTANDING NETWORK STRUCTURES
ONE-SIDED MARKET TWO-SIDED MARKET
Market that derives most of its value from a single class of users.
Same-side exchange benefits: Benefits derived by interaction among members of a single class of participants. Network markets comprised of two distinct categories of participant.
Both need to deliver value for the network to function.
Cross-side exchange benefit: An increase in the number of users on one side of the market, creating a rise in the other side.
Table showing differences between one-sided market and two sided market.
One-sided market: Market that derives most of its value from a single class of users.
Same-side exchange benefits: Benefits derived by interaction among members of a single class of participants.
Two-sided market: Network markets comprised of two distinct categories of participant. Both need to deliver value for the network to function.
Cross-side exchange benefit: An increase in the number of users on one side of the market, creating a rise in the other side.
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LEARNING OBJECTIVE IV
Understand how competition in markets where network effects are present differ from competition in traditional markets.
Understand the reasons why it is so difficult for late-moving, incompatible rivals to compete in markets where a dominant, proprietary standard is present.
HOW ARE THESE MARKETS DIFFERENT? I
Network markets experience early, fierce competition.
Caused by positive-feedback loop inherent in network effects.
Firms are aggressive in the early stages because once a leader becomes clear, new adopters begin to favor the leading product over rivals.
Tips the market in favor of one dominant firm or standard.
Markets exhibit monopolistic tendencies.
One firm dominates all rivals.
Monopoly: Market where there are many buyers but only one dominant seller.
Oligopoly: Market dominated by a small number of powerful sellers.
HOW ARE THESE MARKETS DIFFERENT? II
The graph shows four vales for the incumbent product: Staying power (switching cost), Complementary products, Exchange with a products user base, Technological functionality. The graph shows one value for New, incompatible entrant: Technological functionality.
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LEARNING OBJECTIVE
Plot strategies for competing in markets where network effects are present, both from the perspective of the incumbent firm and the new market entrant.
Give examples of how firms have leveraged these strategies to compete effectively.
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COMPETING WHEN NETWORK EFFECTS MATTER I
Move early (Yahoo! Auctions in Japan).
Subsidize product adoption (PayPal).
Leverage viral promotion (Skype, Facebook feeds, Uber).
Expand by redefining the market to bring in new categories of users or through convergence (iPhone).
Convergence: When two or more markets, once considered distinctly separate, begin to offer similar features and capabilities.
Envelopment: When one market attempts to conquer a new market by making it a subset, component, or feature of its primary offering.
Form alliances and partnerships (NYCE vs. Citibank)
COMPETING WHEN NETWORK EFFECTS MATTER II
Establish distribution channels (Java with Netscape, Microsoft bundling Media Player with Windows)
Seed the market with complements (Blu-ray, Nintendo)
Encourage the development of complementary goods (Facebook fbFund)
Maintain backward compatibility (Apples Mac OS X Rosetta translation software for PowerPC to Intel)
Backward compatibility: Ability to use complementary products developed for a prior generation of technology.
Adaptor: Product that allows a firm to use the complementary products, data, or user base of another product or service.
COMPETING WHEN NETWORK EFFECTS MATTER III
Rivals: maintain compatibility with larger networks (Apples move to Intel)
Incumbents: close off rival access and constantly innovate (Apples efforts to block access to its own systems)
Large, established firms: make preannouncements (Apple Watch)
The Osborne Effect: Firm experiencing a sharp and detrimental drop in the sales of current offerings due to its preannouncement of forthcoming products
Congestion effects: Increasing numbers of users to lower the value of a product or service 1
GUIDE: DISCUSSION FORUMS
Discussions are used to enhance the higher-order thinking skills and creativity of
business students. Discussion comments should be substantive, raise questions, suggest
alternatives, probe for more information, offer recommendations, etc. Replies to initial postings
should be relevant and useful. As mentioned before, avoid “one-liners” and “I agree”
statements that are not supported with an explanation (no credit points for one-liners!).
It is possible–in fact likely–that you will not get a response to everything you post. Since
this course is based on collaborative learning, we expect that participants give and receive
feedback to and from each other. You will be graded on your first comments (initial response to
the question of the forum and your first reply to one of the other students initial response to
the question of the forum).
Asynchronous communication forums have many advantages, including the discussion
of multiple perspectives. You may be more confident to “speak up,” less distracted than in a
typical classroom, and you can enhance your higher-order thinking via exposure to multiple
opinions and perspectives.
NOTE: Do not use attachments in the Moodle discussion forums! Instead cut and paste your
responses from your Word documents into the forum. (Short responses can be typed directly
into the forum box). I will not open the attachment and therefore will not be able to grade your
comments. Also, your classmates will appreciate being able to read your note immediately
without having to click several times and wait for the document to open.
Discussion Forum submission requires TWO steps:
o Step 1: Turnitin Check for your initial response (Submit Here First for Turnitin
Check)
First, submit your response as a Microsoft Word file to the
Forum Discussion assignment link via the submission box shown below.
A Turnitin score will be generated. If not at 20% or less, resubmit
assignment until the threshold is achieved.
Allow 24-36 hours for Turnitin report generations.
Submissions that stop in step one will receive a zero. You must get the
report from Turnitin AND then start Step 2 to get a grade (READ AGAIN).
o Step 2: Discussion Forum (After Turnitin Check)
Second, once your ‘response’ has received a Turnitin score of 20% or less,
copy and paste the same information/assignment to the Discussion
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Forum link. You must submit your ‘response’ to the forum for final
grading.
Turnitin Requirements:
For each case analysis, your similarity score must meet a threshold of no more than
20%.
A ‘response’ with greater than 20% similarity must be revised and resubmitted to
Turnitin until the 20% threshold is achieved.
For resubmissions, it may take up to 24 hours for a new similarity score. No extension
will be offered if your similarity score is high. DO NOT include your reference list when
uploading to Turnitin to lpower the similarity score. Do not forget to add the reference
list back to your post in actual forum.
A ‘response’ with more than 20% threshold will receive a zero.
DISCUSSION FORUM RUBRIC
Several assignments require you to participate in Moodle discussion forums!
Participation will be measured according to the thoughtfulness of response, the accuracy of
response, and the quality of writing.
Discussion comments should be substantive, raise questions, suggest alternatives, probe
for more information, offer recommendations, etc. Replies to initial postings should be relevant
and useful. Avoid “one-liners” and “I agree” statements that are not supported with an
explanation (no credit points for one-liners!).
– You should also develop a dialog with those who responded to your initial post. Refute
or concede your classmates viewpoints (disprove or admit that the other side has a valid point
and say why you think so).
To count as an acceptable response to conceptual problems, your initial responses and
feedback to classmates must include explanations and justifications, citing the sources you used
(including your textbook). An acceptable answer will also apply the concepts from the
textbook/lecture. Forum posts that do not relate directly to the problem(s) being discussed or
do not have any logical justification and are only thoughtless replies will not count as
acceptable responses.
All forum posts must be written in Standard English, using accepted norms of
capitalization, spelling, grammar, and punctuation. Any posts submitted after the deadline will
not be graded (you will receive a zero).
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Specific guidelines will accompany each assignment. If your assignment is a discussion-
board post, you will need to post your initial response by Wednesday night (11:00; CST) or at
the latest by Thursday night (11:00 pm; CST) with 5 points penalty.
IMPORTANT: If you post your initial response after Wednesday 23:00 CST and before
Thursday 23:00 CST your response will be graded, but 5 points will be deducted (read this
sentence again!). Post your feedback to your classmates by Saturday night (11:00 pm; CST)
unless instructed otherwise. Late submissions will not be accepted.
Each forum responses are typically worth 30 points. Only for high-quality initial
responses (and for substantive response/feedback to your classmates) will you receive all the
points possible. Substantive responses show the depth of understanding, demonstrate insight
into the material, and are free from spelling and grammar mistakes. Here is a breakdown of the
points:
Initial Post Rubric:
a. Zero points = failure to post
b. 2-3 points comment is not relevant to the course materials.
c. 4-6 points comment is related to course material but lacks substantive content. Example:
“The book says that effective goodwill messages must be sincere and honest…. I agree.
d. 7-14 points – creative response related to the course material. But fail to include and cite
external materials (e.g., academic articles, web pages, etc.). Example: “The book says that
effective goodwill messages must be sincere and honest…. I agree. My own experience
taught me that
e. 15-25 points going beyond creative response related to the course material and citing at
least TWO external (NOT your textbook) resources (preferably recently published academic
journal articles), and providing examples to enrich your answer and argument. Note: You
must follow APA format in your all citations (i.e., in-texts and reference lists; extra 2 points
will be deducted for each incorrect citations; max 8 points). Extra 10 points will be
deducted if your initial post is less than 250 words (excluding refrences).
f. 25-30 points comment has all the characteristics mentioned in section e and also has
been posted early enough (before Wednesday 23:00 CST) in the week allowing others to
provide feedback and contribute to the information exchange.
Also, 10 Points will be assigned for responses and feedback to other students. Your
responses/feedback must be substantive, enriched by citing resources, and providing examples
based on your experience or readings. You cannot get full credit unless your feedback shows
that you critically thought about and analyzed your classmates or teammates responses. You
must reply first to someone that has no replies (so that there is a fairly even distribution for
each student).
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Responses/feedback Post Rubric:
Zero points = failure to post
1 point response/feedback is not relevant to the initial post and to the course materials.
2-3 points response/feedback is related to the initial post and the course materials but lacks
substantive content.
4-6 points – creative response/feedback related to the initial post and the course materials. Or,
you have responded thoughtfully from your own experience, only.
7-10 points going beyond creative response/feedback related to the initial post and the
course material and referring and citing at least ONE external (NOT your textbook) resource
(preferably recently published academic journal article(s) and/or web pages, and providing
example (s) to enrich your response. Note: You must follow APA format in all citations (i.e., in-
texts and reference lists; extra 2 points will be deducted for each incorrect citations; max 4
points).
Note: Only the first response of each student to the initial response of a peer will be graded.
