Network Economy

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Network Economy by Mind Map: Network Economy

1. Positive Feedback

1.1. Positive Feedback is one of the many key elements in a Network Economy. The main reason is because in the realm of Information Technology, feedback on products is crucial to the growth of a product and or service.

1.2. Allows for consumers to bring forth recommendations for said product/service and increase their customer pool.

1.2.1. Positive feedback should not be confused with growth as such. Shapiro, Carl; Varian, Hal R.. Information Rules

2. Negative Feedback

2.1. Decreases the value of a product as the number of users decreases. It remains imperative that companies focus on their areas of improvement.

2.2. " In a negative-feedback system, the strong get weaker and the weak get stronger, pushing both toward a happy medium. Shapiro, Carl; Varian, Hal R.. Information Rules

3. Network Externalities: "When the value of a technology, product, or service depends upon the number of other entities using it, the phenomenon is called network externality".

3.1. There are both Positive and Negative Externalities.

3.1.1. Positive: As the number of users increases, which in return increases revenue for certain companies and then potentially make items more accessible for the average consumer.

3.2. Also allows for a wider feedback range that can provide insight into the next product build/revamp.

3.2.1. Negative: It is similar to positive, yet with the opposite effect. With dwindling numbers of users, companies then must focus on the areas of improvement in order to sustain a profitable business model.

4. Technical Obstacles

4.1. With positive and negative feedback from consumers, companies are able to project what areas they require more focus on, and ultimately crafting a more robust product.

4.1.1. Many companies focused on innovation and creating the next generation product.

4.1.2. "The technical obstacles you’ll face have to do with the need to develop a technology that is at the same time compatible with, and yet superior to, existing products". Shapiro, Carl; Varian, Hal R.. Information Rules

4.2. Use Creative Design: Improve design and feature sets to allow for a fair competition against other products in the marketplace.

5. Freemium

5.1. Is a strategy that companies use to price their software/hardware accordingly, but there being additional features for a price.

5.1.1. What does this strategy accomplish? Companies are able to encourage consumers with a "free" version of their product, yet with limited features.

5.1.2. This in return allows for consumers to potentially purchase the paid "full version" of said software.

6. Versioning

6.1. This allows for companies to release products to a wide range of consumers, along with product enhancement and availability in general within the competition.

6.1.1. "principles behind creating profitable product lines that target different market segments". Shapiro, Carl; Varian, Hal R.. Information Rules

6.1.2. “version” information goods to make them appeal to different market segments which will pay different prices for the different versions". Shapiro, Carl; Varian, Hal R.. Information Rules

7. Lock-in

7.1. There are many reasons why consumers opt in for "lock-in" pricing on a certain service.

7.1.1. Lower Prices

7.2. Does not allow for a user to easily migrate off their "locked-in" pricing and go onto the next competitors options.

7.2.1. Guaranteed Service Level Agreements and Product Availability.

7.3. "Lock-in arises whenever users invest in multiple complementary and durable assets specific to a particular information technology system". Shapiro, Carl; Varian, Hal R.. Information Rules