Table of Contents
WEEK 2: NETWORK ECONOMICS ............................................................................................................................ 2
2022: MOCK: EXPLAIN THE KEY CONCEPTS OF NETWORK ECONOMICS. HOW DO LOCK-INS SUPPORT ORIGINATIONS' VALUE
CREATION IN THE LONG TERM? JUSTIFY YOUR ANSWER WITH A RELEVANT EXAMPLE. ............................................................. 2
WEEK 3: TRANSACTION COSTS ............................................................................................................................... 8
2022: EXPLAIN USING THE TRANSACTION COSTS THEORY HOW DIGITAL INNOVATION CONTRIBUTED TO AMAZON'S SUCCESS.
DISCUSS AMAZON'S LONG-LASTING SUCCESS USING AN ALTERNATIVE THEORY DISCUSSED IN THE COURSE? PROVIDE EXAMPLES TO
SUPPORT YOUR ANSWER ............................................................................................................................................ 8
MOCK/EXAMPLE: CRITICALLY DISCUSS HOW THE TRANSACTION COSTS THEORY CAN BE USED TO EXPLAIN THE IMPACT OF DIGITAL
INNOVATIONS ON ORGANISATIONS VALUE CREATION. WHY THIS THEORY IS VALUABLE TO STEER MANAGERIAL ACTIONS DIRECTED TO
BETTER SUPPORT ORGANISATIONS VALUE CREATION? ...................................................................................................... 8
WEEK 5: PLATFORMS AND ECOSYSTEMS ............................................................................................................. 13
2022: CRITICALLY DISCUSS HOW PLATFORMS REDEFINE THE ROLE OF COMPANIES IN THE VALUE CHAIN ELIMINATING
INTERMEDIARIES WHILE, AT THE SAME TIME, CREATE OPPORTUNITIES FOR NEW INTERMEDIARIES. SUPPORT YOUR ARGUMENT
USING RELEVANT THEORIES. ..................................................................................................................................... 13
MOCK: CRITICALLY DISCUSS THE MECHANISMS BY WHICH PLATFORMS AS SERVICE ECOSYSTEMS SHAPE NEW BUSINESS MODELS TO
SUPPORT ORGANISATIONS VALUE CREATION ................................................................................................................ 13
MOCK/EXAMPLE: DISCUSS AND CONTRAST TWO ALTERNATIVE STRATEGIES TO MANAGE THE TENSION BETWEEN CONTROL BY THE
PLATFORM OWNER TO MAINTAIN STABILITY AND AUTONOMY OF COMPLEMENTORS TO ENCOURAGE GENERATIVITY. CRITICALLY
ANALYSE HOW INCENTIVES CAN HELP IN PURSUING THE DIFFERENT STRATEGIES? ................................................................ 13
WEEK 8: ARTIFICIAL INTELLIGENCE....................................................................................................................... 19
2022: CRITICALLY DISCUSS HOW ARTIFICIAL INTELLIGENCE (AL) IMPACTS ON ORGANISATIONS VALUE CREATION PROCESSES. WHY
IS IT IMPORTANT TO ANALYSE THE MECHANISMS THAT DETERMINE THE FUNCTIONING OF THE ALGORITHM TO BE ABLE TO ASSESS
THAT ACTUAL VALUE AN AL GENERATES FOR AN ORGANISATION? SUPPORT YOUR ANSWER WITH RELEVANT EXAMPLES. ............. 19
MOCK: DISCUSS THE DIFFERENT VALUES GENERATED BY AI. CRITICALLY DISCUSS HOW AND UNDER WHICH CIRCUMSTANCES AI CAN
CONTRIBUTE TO GENERATE VALUE FOR AN ORGANIZATION. ............................................................................................ 19
WEEK 9: BIG DATA AND DATA ANALYTICS ........................................................................................................... 24
2022: WHAT ARE THE MAJOR CHALLENGES ORGANISATIONS FACE WHEN USING BIG DATA AND DATA ANALYTICS TO GENERATE
BUSINESS VALUE? WHY ARE THE MECHANISMS USED TO COLLECT AND CREATE BIG DATA AND CHARACTERISTICS OF THE ANALYTIC
ALGORITHMS IMPORTANT TO ASSESS THE ACTUAL VALUE THEY GENERATE FOR AN ORGANISATION? SUPPORT YOUR ANSWER WITH
RELEVANT EXAMPLES. ............................................................................................................................................. 24
MOCK/EXAMPLE: DISCUSS THE DIFFERENT VALUES GENERATED BY DATA ANALYTICS. CRITICALLY DISCUSS HOW AND UNDER WHICH
CIRCUMSTANCES DATA ANALYTICS CAN CONTRIBUTE TO GENERATE VALUE FOR AN ORGANIZATION. ........................................ 24
WEEK 11: MANAGERIAL CHALLENGES ................................................................................................................. 29
2022: WHY IS IT IMPORTANT TO ANALYSE THE IMPACT OF DIFFERENT DIGITAL INNOVATIONS ON THE COMPANY VALUE
CREATION HOLISTICALLY? DISCUSS WHY ORCHESTRATION IS IMPORTANT TO MANAGE THE DIFFERENT VALUES GENERATED BY
DIGITAL INNOVATION. ............................................................................................................................................ 29
CRITICALLY DISCUSS WHY THE VALUE CREATION PROCESS SUPPORTED BY DIGITAL INNOVATIONS CANNOT BE EASILY MANAGED
FOLLOWING THE LINEAR RELATIONSHIP DESCRIBED IN THE VALUE CHAIN MODEL. SUPPORT YOUR ANSWER USING RELEVANT
EXAMPLES. ........................................................................................................................................................... 30
,Week 2: Network economics
2022: Mock: Explain the key concepts of network economics. How do lock-ins support originations' value
creation in the long term? Justify your answer with a relevant example.
Point: Key concepts of Network Economics: Old economy vs New economy.
• Network: A network (a complex system of interconnected nodes), increases in value
depending on the number of other people already connected to it.
• Network effects refer to the phenomenon where a product or service becomes more
valuable to its users as more people use it. This can create a positive feedback loop, where
more users lead to more value, which in turn leads to more users. There are two types:
Indirect and direct
- Indirect: The value of the service increases for one user group when a new user of a
different user group joins the network (2+ user groups required) i.e. Uber
- Direct: The value of a service goes up as the number of users goes up i.e. FB
• Old economy vs New economy:
- Old economy: the unique intrinsic properties of digital technologies were what generated value
i.e. tech supports communication/exchange of information
Ø The scarcer the availability of the product, the more unique it is, the higher the value of the
product and the higher the price = higher barriers to market entry. i.e. Louboutin shoes,
produced uniquely or in fewer numbers.
- New economy: Value generation depends on external factors: the wider the adoption of the
technology, the higher the value generated. The value is not in the characteristics of technology
but in its level of adoption.
Ø Should be focused on how you can make more people use the technology, rather than
making the digital technology unique
Explanation: Network Effects:
• Point: Firstly, a network is formed which connects individuals or entities.
• Early Adopters: A few individuals join & see value in being part of the network
• Value: As more users join the network, the utility of the product increases = large user base =more
opportunities for interactions, transactions, or sharing of info, which enhances the overall experience.
• *Positive feedback loop: As the network grows, it attracts more users due to the increased utility.
This creates a positive feedback loop where more users lead to more value, and more value attracts
even more users (in line with Metcalfe’s Law).
- i.e. Google Search or Advertising on google à The more people use Google search engine, the
more valuable it becomes for advertisers to advertise on the platform = Advertisers can reach
larger audience = higher likelihood of their ads being seen by customers = more advertisers
willing to advertise on platform = generates more revenue for company = creates a virtuous
cycle.
• Critical mass: the point at which a product/service reaches sufficient adoption to become self-
sustaining. Early adopters may not experience significant benefits because the costs outweigh the
advantages of the technology alone. However, once critical mass is reached, connections between
users generate enough value to outweigh the costs, making the technology valuable.
- Barriers to entry: It becomes harder for new competitors to enter market. The existing network
has an advantage due to its size/the value it provides, making it difficult for newcomers to attract
users away from the established network.
Ø For a company to outcompete, they need to have the same level of value.
Ø The network economic theory explains why the market configuration of digital economy is
shaped by fewer big companies
• Lock-in effect: Over time, users may become "locked in" to the network due to the network effects.
They rely on the network for connections, transactions, or other benefits, and switching to a different
network becomes less attractive. This further strengthens the position of the established network.
- Network effects sustain value creation: If the network effects continue to operate, the value
creation process is sustained.
,Once you reach a critical mass, there is an effect called increased returns of scale
• Increased Returns of Scale: the cost per unit of production decreases as the scale of production
increases, leading to decreased costs for the platform owner.
- As the user base grows, the fixed costs of maintaining the platform can be spread out over a
larger no. of users, leading to a decrease in cost per user.
• Evidence: Google
- The more people use Google for search, more data collected, allows to improve its algorithms,
provides more accurate and relevant search results. Positive loop where users prefer Google due
to its superior search quality, so people choose Google over its competitors.
- To surpass google, competitors need to reach same number of users to achieve similar
economies of scale. But vast user base and data allow Google to refine search results that are
more attractive to users.
- “I’m going to google it” = ingrained into people’s minds, showcasing the dominance and returns
of scale Google has achieved.
• Evidence of Facebook:
- FB was founded in 2004 by Mark Zuckerberg. Was available to a
few ivy-league universities: network expanded to other schools
and the public.
- More ppl joined FB = which became more valuable to users
because the number of connections increased, as well as the
amount of content users, can access.
- the FB platform reached critical mass when it had a
large enough user base that the value of the
platform was high enough to attract even more
users
- increase in value led to more people joining, creating
a positive feedback loop.
Ø The value of Facebook is in the number of
connections, data, and comments.
- Barriers to entry: if a new social media platform
were to launch, it would face an uphill battle in
trying to convince users to switch from Facebook, as
Facebook already has a large user base and thus
offers more value to its users. This can make it
difficult for new competitors to gain a foothold in
the market
- Evidence: Macintosh:
- Initially, nobody knew of the value of the Macintosh
because it did not have the same level of adoption
as IBM PC so less appealing to users and was more
expensive and did not have the same level of
software support as the IBM PC, which further
hindered its adoption.
• Evidence of Amazon:
- A company that has benefited from positive network
externalities as it has expanded its business and
diversified its offerings from selling books, to diversifying to web services à monopoly status.
BUT VC Funding!!! 90%
Network externalities: can be positive or negative, diminishing the value of a prod/service
, • Point: Network externalities refer to the effect that the use of a product or service by one person has
on the value or utility of that product or service to others.
- Usage externality = refer to the benefits or costs that one user experiences because of another
user's actions on the platform. Doesn’t depend on number of ppl on either side of platform.
• Positive externalities: The surplus arising from the interaction between network components (leading
to a virtuous cycle of more users attracting more users)
- Social Network: value of platform increases for new users as more people adopt
- i.e. when individuals share entertaining content, benefits others by providing them with valuable
information or enjoyable experiences: externality encourages more people to use the platform
and contributes to its network effects.
• Negative externalities: The increasing number of users diminishes the value of the product or service.
- Example: Uber
Ø More uber drivers = more traffic congestion. As more drivers join the platform to offer rides =
higher density of cars on the streets, particularly during peak hours = slower traffic flow,
increased travel times, and overall congestion.
Ø increasing number of Uber drivers diminishes the value of the service for both riders and
drivers. For riders, the additional congestion can lead to longer wait times and higher fares due
to increased demand. For drivers, the increased competition among a larger pool of drivers can
lower their earnings potential.
Ø However, negative usage externality arises when false information or harmful content spreads
rapidly, potentially influencing public opinion or causing social unrest.
• Example: MySpace experience both positive and negative externalities
- Positive externalities: Popular in mid-2000s. More use = more valuable = cycle.
- Negative externalities:
Ø Was outcompeted by more popular social networking platforms Facebook and Instagram à
value decreased for users as people migrated to alternative platforms à created negative
feedback loop à more people left MySpace à lower value, discouraging even more users from
remaining on platform.
• Implication: The value of technology can depend on another technology (for the first phone buyer,
the value was limited by the availability of another phone for someone else to connect with). Network
Effects alone cannot generate value.
Lock-In Effect & Switching Costs:
• Path dependency Once a user gets used to a certain tech or platform, there are things that make it
difficult for them to switch to something else.
- For example, if you use Apple devices, you might have many passwords stored on iCloud; If you
use Facebook to log in to various websites, it becomes challenging to create separate accounts
for each platform. This creates a "switching cost" that the competition would have to offer
incentives to overcome.
• Lock-in: refers to a situation in which a customer or user becomes unable/unwilling to switch to a
different product or service. They rely on the network for connections, transactions, or other benefits
& switching to a different network = less attractive.
• Evidence: This can occur due to:
- Switching costs: the cost that the user must face to migrate from one product to another. The
higher these are, the higher the value the competitor has to offer to the user to switch. Example
of GroupOn and LivingSocial with low switching costs
- The perceived value or quality of the current product or service:
- The existence of complementary products or services that are only available in conjunction with
the current product or service:
Ø iCloud allows users to sync and store data across devices, while services like Apple Music, Apple
TV+, and Apple Arcade provide exclusive content and entertainment options
Ø Exclusive features and interconnectivity, like AirDrop, further enhance the user experience
within the ecosystem
WEEK 2: NETWORK ECONOMICS ............................................................................................................................ 2
2022: MOCK: EXPLAIN THE KEY CONCEPTS OF NETWORK ECONOMICS. HOW DO LOCK-INS SUPPORT ORIGINATIONS' VALUE
CREATION IN THE LONG TERM? JUSTIFY YOUR ANSWER WITH A RELEVANT EXAMPLE. ............................................................. 2
WEEK 3: TRANSACTION COSTS ............................................................................................................................... 8
2022: EXPLAIN USING THE TRANSACTION COSTS THEORY HOW DIGITAL INNOVATION CONTRIBUTED TO AMAZON'S SUCCESS.
DISCUSS AMAZON'S LONG-LASTING SUCCESS USING AN ALTERNATIVE THEORY DISCUSSED IN THE COURSE? PROVIDE EXAMPLES TO
SUPPORT YOUR ANSWER ............................................................................................................................................ 8
MOCK/EXAMPLE: CRITICALLY DISCUSS HOW THE TRANSACTION COSTS THEORY CAN BE USED TO EXPLAIN THE IMPACT OF DIGITAL
INNOVATIONS ON ORGANISATIONS VALUE CREATION. WHY THIS THEORY IS VALUABLE TO STEER MANAGERIAL ACTIONS DIRECTED TO
BETTER SUPPORT ORGANISATIONS VALUE CREATION? ...................................................................................................... 8
WEEK 5: PLATFORMS AND ECOSYSTEMS ............................................................................................................. 13
2022: CRITICALLY DISCUSS HOW PLATFORMS REDEFINE THE ROLE OF COMPANIES IN THE VALUE CHAIN ELIMINATING
INTERMEDIARIES WHILE, AT THE SAME TIME, CREATE OPPORTUNITIES FOR NEW INTERMEDIARIES. SUPPORT YOUR ARGUMENT
USING RELEVANT THEORIES. ..................................................................................................................................... 13
MOCK: CRITICALLY DISCUSS THE MECHANISMS BY WHICH PLATFORMS AS SERVICE ECOSYSTEMS SHAPE NEW BUSINESS MODELS TO
SUPPORT ORGANISATIONS VALUE CREATION ................................................................................................................ 13
MOCK/EXAMPLE: DISCUSS AND CONTRAST TWO ALTERNATIVE STRATEGIES TO MANAGE THE TENSION BETWEEN CONTROL BY THE
PLATFORM OWNER TO MAINTAIN STABILITY AND AUTONOMY OF COMPLEMENTORS TO ENCOURAGE GENERATIVITY. CRITICALLY
ANALYSE HOW INCENTIVES CAN HELP IN PURSUING THE DIFFERENT STRATEGIES? ................................................................ 13
WEEK 8: ARTIFICIAL INTELLIGENCE....................................................................................................................... 19
2022: CRITICALLY DISCUSS HOW ARTIFICIAL INTELLIGENCE (AL) IMPACTS ON ORGANISATIONS VALUE CREATION PROCESSES. WHY
IS IT IMPORTANT TO ANALYSE THE MECHANISMS THAT DETERMINE THE FUNCTIONING OF THE ALGORITHM TO BE ABLE TO ASSESS
THAT ACTUAL VALUE AN AL GENERATES FOR AN ORGANISATION? SUPPORT YOUR ANSWER WITH RELEVANT EXAMPLES. ............. 19
MOCK: DISCUSS THE DIFFERENT VALUES GENERATED BY AI. CRITICALLY DISCUSS HOW AND UNDER WHICH CIRCUMSTANCES AI CAN
CONTRIBUTE TO GENERATE VALUE FOR AN ORGANIZATION. ............................................................................................ 19
WEEK 9: BIG DATA AND DATA ANALYTICS ........................................................................................................... 24
2022: WHAT ARE THE MAJOR CHALLENGES ORGANISATIONS FACE WHEN USING BIG DATA AND DATA ANALYTICS TO GENERATE
BUSINESS VALUE? WHY ARE THE MECHANISMS USED TO COLLECT AND CREATE BIG DATA AND CHARACTERISTICS OF THE ANALYTIC
ALGORITHMS IMPORTANT TO ASSESS THE ACTUAL VALUE THEY GENERATE FOR AN ORGANISATION? SUPPORT YOUR ANSWER WITH
RELEVANT EXAMPLES. ............................................................................................................................................. 24
MOCK/EXAMPLE: DISCUSS THE DIFFERENT VALUES GENERATED BY DATA ANALYTICS. CRITICALLY DISCUSS HOW AND UNDER WHICH
CIRCUMSTANCES DATA ANALYTICS CAN CONTRIBUTE TO GENERATE VALUE FOR AN ORGANIZATION. ........................................ 24
WEEK 11: MANAGERIAL CHALLENGES ................................................................................................................. 29
2022: WHY IS IT IMPORTANT TO ANALYSE THE IMPACT OF DIFFERENT DIGITAL INNOVATIONS ON THE COMPANY VALUE
CREATION HOLISTICALLY? DISCUSS WHY ORCHESTRATION IS IMPORTANT TO MANAGE THE DIFFERENT VALUES GENERATED BY
DIGITAL INNOVATION. ............................................................................................................................................ 29
CRITICALLY DISCUSS WHY THE VALUE CREATION PROCESS SUPPORTED BY DIGITAL INNOVATIONS CANNOT BE EASILY MANAGED
FOLLOWING THE LINEAR RELATIONSHIP DESCRIBED IN THE VALUE CHAIN MODEL. SUPPORT YOUR ANSWER USING RELEVANT
EXAMPLES. ........................................................................................................................................................... 30
,Week 2: Network economics
2022: Mock: Explain the key concepts of network economics. How do lock-ins support originations' value
creation in the long term? Justify your answer with a relevant example.
Point: Key concepts of Network Economics: Old economy vs New economy.
• Network: A network (a complex system of interconnected nodes), increases in value
depending on the number of other people already connected to it.
• Network effects refer to the phenomenon where a product or service becomes more
valuable to its users as more people use it. This can create a positive feedback loop, where
more users lead to more value, which in turn leads to more users. There are two types:
Indirect and direct
- Indirect: The value of the service increases for one user group when a new user of a
different user group joins the network (2+ user groups required) i.e. Uber
- Direct: The value of a service goes up as the number of users goes up i.e. FB
• Old economy vs New economy:
- Old economy: the unique intrinsic properties of digital technologies were what generated value
i.e. tech supports communication/exchange of information
Ø The scarcer the availability of the product, the more unique it is, the higher the value of the
product and the higher the price = higher barriers to market entry. i.e. Louboutin shoes,
produced uniquely or in fewer numbers.
- New economy: Value generation depends on external factors: the wider the adoption of the
technology, the higher the value generated. The value is not in the characteristics of technology
but in its level of adoption.
Ø Should be focused on how you can make more people use the technology, rather than
making the digital technology unique
Explanation: Network Effects:
• Point: Firstly, a network is formed which connects individuals or entities.
• Early Adopters: A few individuals join & see value in being part of the network
• Value: As more users join the network, the utility of the product increases = large user base =more
opportunities for interactions, transactions, or sharing of info, which enhances the overall experience.
• *Positive feedback loop: As the network grows, it attracts more users due to the increased utility.
This creates a positive feedback loop where more users lead to more value, and more value attracts
even more users (in line with Metcalfe’s Law).
- i.e. Google Search or Advertising on google à The more people use Google search engine, the
more valuable it becomes for advertisers to advertise on the platform = Advertisers can reach
larger audience = higher likelihood of their ads being seen by customers = more advertisers
willing to advertise on platform = generates more revenue for company = creates a virtuous
cycle.
• Critical mass: the point at which a product/service reaches sufficient adoption to become self-
sustaining. Early adopters may not experience significant benefits because the costs outweigh the
advantages of the technology alone. However, once critical mass is reached, connections between
users generate enough value to outweigh the costs, making the technology valuable.
- Barriers to entry: It becomes harder for new competitors to enter market. The existing network
has an advantage due to its size/the value it provides, making it difficult for newcomers to attract
users away from the established network.
Ø For a company to outcompete, they need to have the same level of value.
Ø The network economic theory explains why the market configuration of digital economy is
shaped by fewer big companies
• Lock-in effect: Over time, users may become "locked in" to the network due to the network effects.
They rely on the network for connections, transactions, or other benefits, and switching to a different
network becomes less attractive. This further strengthens the position of the established network.
- Network effects sustain value creation: If the network effects continue to operate, the value
creation process is sustained.
,Once you reach a critical mass, there is an effect called increased returns of scale
• Increased Returns of Scale: the cost per unit of production decreases as the scale of production
increases, leading to decreased costs for the platform owner.
- As the user base grows, the fixed costs of maintaining the platform can be spread out over a
larger no. of users, leading to a decrease in cost per user.
• Evidence: Google
- The more people use Google for search, more data collected, allows to improve its algorithms,
provides more accurate and relevant search results. Positive loop where users prefer Google due
to its superior search quality, so people choose Google over its competitors.
- To surpass google, competitors need to reach same number of users to achieve similar
economies of scale. But vast user base and data allow Google to refine search results that are
more attractive to users.
- “I’m going to google it” = ingrained into people’s minds, showcasing the dominance and returns
of scale Google has achieved.
• Evidence of Facebook:
- FB was founded in 2004 by Mark Zuckerberg. Was available to a
few ivy-league universities: network expanded to other schools
and the public.
- More ppl joined FB = which became more valuable to users
because the number of connections increased, as well as the
amount of content users, can access.
- the FB platform reached critical mass when it had a
large enough user base that the value of the
platform was high enough to attract even more
users
- increase in value led to more people joining, creating
a positive feedback loop.
Ø The value of Facebook is in the number of
connections, data, and comments.
- Barriers to entry: if a new social media platform
were to launch, it would face an uphill battle in
trying to convince users to switch from Facebook, as
Facebook already has a large user base and thus
offers more value to its users. This can make it
difficult for new competitors to gain a foothold in
the market
- Evidence: Macintosh:
- Initially, nobody knew of the value of the Macintosh
because it did not have the same level of adoption
as IBM PC so less appealing to users and was more
expensive and did not have the same level of
software support as the IBM PC, which further
hindered its adoption.
• Evidence of Amazon:
- A company that has benefited from positive network
externalities as it has expanded its business and
diversified its offerings from selling books, to diversifying to web services à monopoly status.
BUT VC Funding!!! 90%
Network externalities: can be positive or negative, diminishing the value of a prod/service
, • Point: Network externalities refer to the effect that the use of a product or service by one person has
on the value or utility of that product or service to others.
- Usage externality = refer to the benefits or costs that one user experiences because of another
user's actions on the platform. Doesn’t depend on number of ppl on either side of platform.
• Positive externalities: The surplus arising from the interaction between network components (leading
to a virtuous cycle of more users attracting more users)
- Social Network: value of platform increases for new users as more people adopt
- i.e. when individuals share entertaining content, benefits others by providing them with valuable
information or enjoyable experiences: externality encourages more people to use the platform
and contributes to its network effects.
• Negative externalities: The increasing number of users diminishes the value of the product or service.
- Example: Uber
Ø More uber drivers = more traffic congestion. As more drivers join the platform to offer rides =
higher density of cars on the streets, particularly during peak hours = slower traffic flow,
increased travel times, and overall congestion.
Ø increasing number of Uber drivers diminishes the value of the service for both riders and
drivers. For riders, the additional congestion can lead to longer wait times and higher fares due
to increased demand. For drivers, the increased competition among a larger pool of drivers can
lower their earnings potential.
Ø However, negative usage externality arises when false information or harmful content spreads
rapidly, potentially influencing public opinion or causing social unrest.
• Example: MySpace experience both positive and negative externalities
- Positive externalities: Popular in mid-2000s. More use = more valuable = cycle.
- Negative externalities:
Ø Was outcompeted by more popular social networking platforms Facebook and Instagram à
value decreased for users as people migrated to alternative platforms à created negative
feedback loop à more people left MySpace à lower value, discouraging even more users from
remaining on platform.
• Implication: The value of technology can depend on another technology (for the first phone buyer,
the value was limited by the availability of another phone for someone else to connect with). Network
Effects alone cannot generate value.
Lock-In Effect & Switching Costs:
• Path dependency Once a user gets used to a certain tech or platform, there are things that make it
difficult for them to switch to something else.
- For example, if you use Apple devices, you might have many passwords stored on iCloud; If you
use Facebook to log in to various websites, it becomes challenging to create separate accounts
for each platform. This creates a "switching cost" that the competition would have to offer
incentives to overcome.
• Lock-in: refers to a situation in which a customer or user becomes unable/unwilling to switch to a
different product or service. They rely on the network for connections, transactions, or other benefits
& switching to a different network = less attractive.
• Evidence: This can occur due to:
- Switching costs: the cost that the user must face to migrate from one product to another. The
higher these are, the higher the value the competitor has to offer to the user to switch. Example
of GroupOn and LivingSocial with low switching costs
- The perceived value or quality of the current product or service:
- The existence of complementary products or services that are only available in conjunction with
the current product or service:
Ø iCloud allows users to sync and store data across devices, while services like Apple Music, Apple
TV+, and Apple Arcade provide exclusive content and entertainment options
Ø Exclusive features and interconnectivity, like AirDrop, further enhance the user experience
within the ecosystem
