Network Economies

1. Network Externalities

1.1. One market participant affects another without compansation

1.2. value of a product increases as more use it

2. Collective Switching Costs

2.1. Combined switching costs of all product users

2.2. collective switching costs are larger because of the combined effort needed to change

3. Industries and Positive Feedback

3.1. not every company relies on feedback

3.2. standardization prevents one company from taking over another, so strong companies don't take completely over

4. Strategies

4.1. Evolution: Focus on compatibility of products with installed base, to promote easy migration

4.2. Revolution: Focus on superior performance of products, forcing consumers to risk switching costs for improved performance

5. Positive Feedback

5.1. Improves product popularity and creates market saturation

5.2. strong get stronger, weak get weaker

6. Economy of Scale

6.1. larger firms have lower unit costs

6.2. products grow in popularity as they gain compatible users

7. Standardization

7.1. many companies create products based on the same requirements or plans

7.2. can lower switching costs and make related products more appealing