network effects

what is network effects?

Network Effects: the more people/parts to a network, the more powerful it becomes. Simple example: if you were the only person in the world to won a telephone it wouldn’t be very useful but the more people own one the more useful and powerful it becomes.

• example of this would be with the Mumbai Terror attacks, updates of the situation were appearing through twitter and the website was used as a source for update on the news.

eBay• More people are on eBay there are therefore

more people bidding on items pushing the bids up, and so it is worthwhile now to sell on eBay as you are likely to get a higher price for your items than you would on a new or different market website.

• facebook is another good example of network effects because of the amount of people who use it. More than 500 million people have a facebook account. And network effects can be seen in facebook through people constantly updating their status through their phones.

Tipping Point

• Tipping Point is when an programme or application reaches so many users that they would not consider switching to another as they would not receive the same value they do now on another network. (Facebook; no one would switch to a new social network as there are to many people using it now.)

Network Effects by Default.

• In “8 Traits of New Media Landscape,” Henry Jenkins says ‘There will only be a minority of people that will add to the application, and so the application will set inclusive defaults to gather data as a side effect of their use of the application.’ This essentially means that websites/networks can gather data from those who don’t add to get even more information.

• An example of this would be Amazon, some users will add book reviews to their websites for people to read, but Amazon can also track the purchases of those who don’t upload reviews and see which books are the most popular in terms of purchases as well as what other products they have bought from the website.

Opening up Platforms for Others to Use

• Amazon was so confident in itself and its market position they allowed others to sell items through their website through their Amazon Marketplace and then take a cut of the sales.

Examples of Network Effects in the Press• Some Journalist will spread information about

their article through sites like twitter to use the internets power for word of mouth viral marketing. This will help spread the news quickly and freely as well.

• The guardian online has more readers in America than over here. This shows the power of network effects by word of mouth and twitter. The Times by putting up a pay wall will miss out on the ability to spread their work to a larger audience and fail to use the internet to one of its strengths; viral marketing.

Benefits of Network Effects

• With all the information gained from users the site/company can provide clearer information and accurate recommendations, like on amazons; what you might like section.

• Critical mass is a benefit of network effects as you can determine whether or not the product is doing well. The more people who use the service the more the decrease in subscription/service. eBay can take less of a cut now than a new market website they have enough users to afford it.

Problems with Network Effects

• The idea of networked media may not always be a good thing, for example Wikipedia; the idea that the more editors and input it has the more reliable it becomes, however the information provided can be false and can also be largely opinionated.

• If there is only one company dominating a certain market without competition, then that company can sometimes increase fees, or restrict resources because the users have no other viable options to go to. Megavideo began charging users for unlimited use of their website.