Network Effects →

Assessing the Strength of Network Effects in Social Network Platforms

Network-specific traits, such as the degree of clustering and the prevalence of multihoming, influence the strength and competitive impact of network effects. However, network size alone is often misleading, and network effects should be examined on a case-by-case basis.

If the Key to Business Success Is Focus, Why Does Amazon Work?

Sunil Gupta explores the infiltration of Amazon into dozens of industries including web services, grocery, and movie production. What’s the big plan? Is the company spread too thin? Open for comment; 0 Comments.

Advancing Computational Biology and Bioinformatics Research Through Open Innovation Competitions

Crowdsourcing is a way for many individuals to address a common problem. This paper describes the design and outcomes of three crowdsourcing contests focused on algorithms for 1) clustering antibody sequences, 2) imputing gene expression measurements, and 3) performing fast queries on a particular dataset. Innovation through contests greatly improved the solutions available.

Credit Supply Shocks, Network Effects, and the Real Economy

Using data for Spain between 2003 and 2013, this study examines firms’ responses to credit supply shocks during times of boom (expansion) and bust (financial crisis and recession). Results indicate that propagation of these shocks through the Spanish production network doubles the magnitude of the real effects typically estimated in the literature. This study also shows how such effects vary greatly during booms and busts.

The Dynamic Effects of Bundling as a Product Strategy

This paper investigates the practice of bundling as a product strategy, and identifies how consumers make choices between products and bundles in a dynamic environment. Authors Timothy Derdenger and Vineet Kumar look at the handheld video game market to study bundling in a platform setting with the goal of investigating several key questions of interest to practitioners who make product decisions: First, do consumers value bundles over and beyond their component products, indicating a synergy, which some researchers have hypothesized? Second, have there been differing opinions on whether mixed bundling, that is offering both the bundle and individual products for sale, is more effective than offering only pure bundles or even compared to offering only the products for sale? Given the prevalence of bundling in technology markets, it is critical to understand whether bundling is more effective in environments with strong network effects or with weak network effects. Key concepts include: Consumers have a negative synergy effect, that is they are willing to pay less for the bundle than for the individual console and game, leading to the question of whether introducing such bundles can increase revenue. Because bundles act similar to damaged goods, they work well in dynamically segmenting consumers and allow for purchases to occur earlier in time—the presence of bundles induces consumers to purchase earlier rather than wait. The time shifting of hardware purchases has a strong effect on software sales, since more consumers who own consoles will purchase video games over a longer time frame. Mixed bundling is especially effective compared to pure bundling, and the authors find that moving to pure bundling would reduce sales by over 20 percent. Strong network effects do not enhance the value of bundling, suggesting that bundling may instead prove more useful in settings with weak network effects. Bundling is thus a strategy that could serve as a substitute to creating stronger network effects. Closed for comment; 0 Comments.

Why Do Countries Adopt International Financial Reporting Standards?

Why do some countries adopt the European Union (EU)-based International Financial Reporting Standards (IFRS) when others do not? To expand our understanding of the determinants and consequences of IFRS adoption on a global sample, HBS professor Karthik Ramanna and MIT Sloan School of Management coauthor Ewa Sletten studied variations over time in the decision to adopt these standards in more than a hundred non-EU countries. Understanding countries' adoption decisions can provide insights into the benefits and costs of IFRS adoption. Key concepts include: Countries with high quality corporate governance systems and more powerful countries are less likely to adopt IFRS. There are network benefits to IFRS adoption, i.e., the likelihood of IFRS adoption for a given country increases with the number of IFRS adopters in its geographical region and with IFRS adoption among its trade partners. As more countries adopt the international standards, the relative import of network benefits from IFRS adoption (over direct economic benefits) are likely to increase. Similar effects might be seen in the adoption of accounting methods and standards, and of corporate governance best practices by firms and jurisdictions. Closed for comment; 0 Comments.

Do Friends Influence Purchases in a Social Network?

In spite of the cultural and social revolution in the rise of social networking sites such as Facebook and MySpace (and in South Korea, Cyworld), the business viability of these sites remains in question. While many sites are attempting to follow Google and generate revenues from advertising, will advertising be effective? If friends influence the purchases of a user in a social network, it could potentially be a significant source of revenue for the sites and their corporate sponsors. Using a unique data set from Cyworld, this study empirically assesses if friends indeed influence purchases. The answer: It depends. Findings are relevant for social networking sites and large advertisers. Key concepts include: There is a significant and positive impact of friends' purchases on the purchase probability of a user. However, there are significant differences across users. Specifically, this social effect is zero for 48 percent of the users, negative for 12 percent of the users, and positive for 40 percent of the users. "Moderately connected" users exhibit "keeping up with the Joneses" behavior. On average, this social influence translates into a 5 percent increase in revenues. Highly connected users tend to reduce their purchases of items when they see their friends buying them. This negative social effect reduces the revenue for this group by more than 14 percent. This finding is consistent with the typical fashion cycle wherein opinion leaders or the elite in the fashion industry tend to abandon one type of fashion and adopt the next in order to differentiate themselves from the masses. Closed for comment; 0 Comments.