networks and positive feedback - vanderbilt bu.PPT

Networks and Positive Feedback Presentation for MGT 523 By Jay Gorman Morpheus Usage How many of you currently use Morpheus? How many of you would use Morpheus if it had only 10,000 regular users? How many of you would use Morpheus if it had over 10 MM regular users? Economies of Scale vs. Economies of Networks Economies of Scale Unit costs decrease as production levels increase. Typically economic benefits exhausted before demand Tends to create oligopolies. Examples: Auto Industry, Steel Industry, Airlines, Etc. Economies of Networks Value of goods increase with market penetration Economic benefits continue with increased penetration Can create monopolies or monopolistic standards Examples: Microsoft, VHS, Compact Discs. Supply vs Demand Side Economies of Scale Supply Side Economies of Scale – As production increases, development and fixed costs can be spread over more units, thus making each unit cheaper. Highly important in establishing information economies. Examples: Software development, movie production etc. Demand Side Economies of Scale – As more and more users accept a product its value increases as switching costs increase. Even more important in establishing information economies. Examples: Word, Excel, AOL IM, Sony Playstation Creating Economies of Networks Positive Feedback – “Feedback that results in amplification or growth in the output signal” Essentially a positive public response to a product which increases acceptance, and thus economies of networks. Negative Feedback – “Feedback that reduces the output of a system, such as the action of heat on a thermostat to limit the output of a furnace or the accumulation of toxic waste products by a growing population of bacteria.” Essentially a negative public reaction which causes a reduction in the usage of a product or technology, which ultimately reduces value for remaining users. Network Externalities Network Externalities – As ownership of a product increases the v