Indirect Network Effects in New Product Growth
Indirect network effects are of prime interest to marketers because they affect the growth and takeoff of software availability for and hardware sales of a new product. Although prior work on indirect network effects in the economics and marketing literature is valuable, there are two main shortcomings. First, empirical analysis of indirect network effects is rare. Second, in contrast to the importance prior literature credits to the “chicken-and-egg” paradox in these markets, the temporal pattern (i.e., Which leads to which?) of indirect network effects remains unstudied. Based on empirical evidence of nine markets, this study shows that (1) indirect network effects, as commonly operationalized by prior literature, are weaker than expected from prior literature and (2) in most markets examined, hardware sales “lead” software availability, whereas the reverse almost never happens, contrary to existing beliefs. These findings are supported by multiple methods, such as takeoff and time-series analyses, and fit with the histories of the markets studied herein. For academia, the study identifies a need for new and more relevant conceptualizations of indirect network effects. For public policy, it questions the need for intervention in network markets. For management practice, it downplays the importance of the availability of a large library of software for hardware technology to be successful.
|Keywords||chicken-and-egg, computers, hardware sales, indirect network effects, marketing, marketing literature, network effect, new product growth, new products, product orientation, quality function deployment, software availability, tekeoff|
|JEL||Statistical Decision Theory; Operations Research (jel C44), Business Administration and Business Economics; Marketing; Accounting (jel M), Production Management (jel M11), Marketing (jel M31)|
|Series||ERIM Top-Core Articles|
|Journal||Journal of Marketing|
Stremersch, S, Tellis, G.J, Franses, Ph.H.B.F, & Binken, J.L.G. (2007). Indirect Network Effects in New Product Growth. Journal of Marketing, 52–74. Retrieved from http://hdl.handle.net/1765/13374