chapter 8

Network effects ________________ influence all consumer products or services.

do not

TCO

Directs costs such as purchase price, plus indirect costs such as training, support, and maintenance.

Many firms attempt to ___________ their network effects by creating a platform for the development of third-party products and services that enhance the primary offering.

Enhance

Staying power refers to the:

The long-term viability of a product or service.

While network effects limit competition _________ the dominant standard, innovation ______________ a standard may actually blossom.

against, within

Windows OS, the iPhone, the Nintendo Wii, and Facebook's application programming interfaces allow for the development and integration of complementary goods by third parties. Based on this evidence, all these products or services are said to be _____.

platforms

Complementary benefit

products or services that add additional value to the primary product or service that makes up a network

Economists call the video game market a __________-sided market.

two

_____ are benefits provided by products or services that add additional value to the primary product or service that makes up a network.

Complementary benefits

_________ allows Apple to use iOS as a platform for exercise and personal health measurement.

Healthkit

Which term is used as an alternative to switching costs?

Lock-in

Which statement best describes the relationship between network effects and innovation?

Network effects increase innovation within a standard but decrease the number of innovative offerings that compete against a strongly established standard.

As an example of a firm offering to subsidize initial adoption, ______________ gave users a modest rebate as a sign-up incentive to encourage adoption of its new effort.

Paypal

________________ are products and services that allow for the development and integration of software products and other complementary goods.

Platforms

APIs

Programming hooks, or guidelines, published by firms that tell other programs how to get a service to perform a task such as send or receive data.

Cross-side exchange benefit

When an increase in the number of users on one side of the market (console owners, for example) creates a rise in the other side

allowing other firms to contribute to its platform

Without spending money or time, a firm can expect to enhance its offerings by _____.

positive

a ___________ feedback loop is inherent in network effects

Oligopoly

a market dominated by a small number of powerful sellers

monopoly

a market where there are many buyers but only one dominant seller

Same-side exchange benefit

benefits derived by interaction among members of a single class of participant

Apple, which controls over 75 percent of digital music sales, was able to dictate song pricing for years, despite the tremendous protests of the record labels. This implies that: ________________

firms with strong market dominance can enjoy substantial bargaining power over partners.

The video game console market offers important lessons for the strategist. The video game console market is a network market in which Sony's PlayStation 2 (PS2) dominated over Microsoft's Xbox offering. This has been possible due to:

game developers favoring PS2 for its larger user base obtained because the PS2 was launched months before the Xbox.

Worldwide auction leader eBay started operations in Japan just five months after Yahoo! launched its Japanese auction service. But eBay was never able to mount a credible threat and ended up pulling out of the market. This example shows that:

it's imperative to move first in markets influenced by network effects.

Technological _______________ is competing by offering a new technology that is so superior to existing offerings that the value overcomes the total resistance that older technologies might enjoy via exchange, switching cost, and complementary benefits.

leapfrogging

Large firms like Facebook and Amazon are _______________ than small startup firms to get away with a "move fast, break things" attitude and chalk their missteps up to entrepreneurial experimentalism

less-likely

Viral promotion involves:

leveraging a firm's customers to promote a product or service.

During an antitrust trial, Judge Thomas Penfield Jackson declared ___________ to be a monopoly.

microsoft

Unseating a firm that dominates with network effects can be extremely difficult, especially if the newcomer is not compatible with the established leader. For evidence, just look at how difficult it's been for rivals to unseat the dominance of _____________

microsoft windows

Metcalfe's Law is also known as _____.

network externalities

A market dominated by a small number of powerful sellers is known as a(n) _____.

oligopoly

The "Big Four" record labels are considered a(n) _____________, which together provided over 85 percent of music sold in the United States.

oligopoly

Economists call messaging a _______market.

one-sided

Which product or service is not subject to network effects?

snack chip manufacturing

It is important for a company to have good _____________ power so that customers can rely on the company surviving and continuing to support the standard.

staying

Which factor represents one of the sources of value derived from network effects?

staying power

_______________ are the cost a consumer incurs when moving from one product to another.

switching costs