Tag Archives: chris-dixon

Overcoming Network Effects

A net­work effect is “the effect that one user of a good or ser­vice has on the value of that product to oth­er people”. When there is a pos­it­ive net­work effect we say that the good or ser­vice in ques­tion increases in use­ful­ness the more users there are, like the tele­phone or online social net­works.

Of course, being in a busi­ness or sec­tor that relies on pos­it­ive net­work extern­al­it­ies brings with it one inher­ent prob­lem: get­ting to the socio­dy­nam­ic crit­ic­al mass. Chris Dix­on looks at six strategies for over­com­ing strong net­work effects; the so-called “chick­en and egg” prob­lems.

  • Sig­nal long-term com­mit­ment to plat­form suc­cess and com­pet­it­ive pri­cing: Microsoft’s $500m pro­mo­tion of the xbox plat­form.
  • Use back­wards and side­ways com­pat­ib­il­ity to bene­fit from exist­ing com­ple­ments: Microsoft with DOS and Win­dows ver­sions, Apple with Boot­camp.
  • Exploit irreg­u­lar net­work topo­lo­gies: (Early) Face­book and JDate for social net­work­ing and dat­ing respect­ively.
  • Influ­ence the firms that pro­duce vital com­ple­ments: Sony and Philips influ­en­cing Poly­gram for their CDs.
  • Provide stan­dalone value for the base product: Record­ing of tele­vi­sion on VCRs.
  • Integ­rate ver­tic­ally into crit­ic­al com­ple­ments when sup­ply is not cer­tain: Nin­ten­do’s games con­soles with games fun­ded by Microsoft and Sony.

via Ben Cas­nocha