Stuttgart Media University | Summer Term 2008

EXTERNAL NETWORK-EFFECTS

DOMINIK OSWALD

Integrated Marketing Communication | Stuttgart Media University | Summer Term 2008

2-SIDED-MARKETS

2-sided-markets are defined by some industries which are typically offering a platform for two market participants. These participants are able to collaborate or contract on this specific stage.

Source: Management von Netzwerkeffekten/ Uni Zürich/ Helmut M. Dietl

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Integrated Marketing Communication | Stuttgart Media University | Summer Term 2008

WHAT ARE NETWORK-EFFECTS?

Network-Effects are present if the consumer is willing to pay more because of an expected rising number of network participants.

Example: The benefit of the telephone network increases with more consumers having a telephone and being connected with the others. This principle corresponds to the railway system or the internet.

Source: Management von Netzwerkeffekten/ Uni Zürich/ Helmut M. Dietl

Chart 3

Integrated Marketing Communication | Stuttgart Media University | Summer Term 2008

THE IMPACT OF NETWORK-EFFECTS

Marginal costs

Demand

€

AmountCritical mass

Source: Management von Netzwerkeffekten/ Uni Zürich/ Helmut M. Dietl

Chart 4

Integrated Marketing Communication | Stuttgart Media University | Summer Term 2008

TYPES OF NETWORK-EFFECTS

Direct

The consumer benefits directly from the network he belongs

to.

Example: Telephone-Network, File-sharing networks

Indirect/ Extern

The benefit is rising if the size of another connected network

grows.

(= 2-sided-market)

Example: Advertiser - Audience

Source: Medienwirtschaft Sonderheft 2007/ Dr. Ralf Dewenter/ p. 07

Chart 5

Integrated Marketing Communication | Stuttgart Media University | Summer Term 2008

Spiral of Advertisement and Circulation

Chart 6

Integrated Marketing Communication | Stuttgart Media University | Summer Term 2008

INTEGRATION INTO THE MEDIA-SIMULATOR

Chart 7

External Network-Effects are quite difficult to integrate into an holistic plan because their estimations are based on pure experiences. The following abrasive suggestions might help:

• Defining how much markets are involved into the product and generating positive feedbacks between these participants.

• Creating something like a “penguin-scale” where it is possible to estimate the needed amount of critical masses / Demand-Index

• Persuading the “old economy” that network-effects are one of the most important indices to consider in the future / Globalization, etc.