BADM 350 Lecture 8 Outline of Current Lecture I. Network Effects ExamplesII. One-Sided Vs. Two-Sided MarketsIII. How to deal with Network EffectsChapter 4 SummaryThe value derived from network effects come from three sources:- Exchange- Staying Power- Complimentary BenefitsLooking at Uber as an example of a company who uses Network effects, people can split bills if they all have the same app, users get a credit to their account if they sign up new members, the more that people switch from Taxi’s to Uber the more leveraging power there is to keep Uber in business, and there are two different classes of participants that gain value (users and drivers)One-Sided Markets- a market that derives most of its value from a single class of users- Benefits come from interaction among members of a single type of participantTwo-sided Markets- Network markets comprised of two distinct categories of participants, both need to deliver value for the network to work- Ex. The increase of users for Uber increases the value for Uber drivers to continue using the service- Ex. When Netflix gains more users the makers of TV shows and Movies benefit and are able to provide more content for viewers to watchWhen network effects are involved, the best product may not win. It is important to have strategies that take into account Network effects- Ex. Zune was reviewed as a better product than the iPod, but since the iPod had the iTunes store, more iPods were soldSometimes a new entrant is so much better than the old version that it takes over. Facebook became a much bigger social media platform than MyspaceThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.Network Effect strategies: Move early, subsidize product adoption, leverage viral promotion, expand by redefining the market to bring in new categories of users, form alliances/partnerships, establish distribution channels, seed the market with complements, encourage development of complementary goods, maintain backward compatibility, constantly innovate to create a moving target and block rival efforts to access your networkFeedback loops help companies grow- Companies have famous YouTube celebrities review their new products. This way, the YouTube celebrity enjoys free products, the company gets advertising, and the video watcher likes seeing new products earlier. Everyone wins and it provides value to each section