4 ms·
Your use of the term "network effects" is a touch loose. Network effects refer to a situation where the product becomes more valuable with more users. This is
by jtraffic 9y ago
Your use of the term "network effects" is a touch loose. Network effects refer to a situation where the product becomes more valuable with more users. This is not the same as simply having a large customer base. Probably the better way to say it: "Microsoft and Facebook both gained advantages because their customers had high switching costs."
FB users have high switching costs in terms of opportunity costs (by leaving FB they forego value) and those opportunities costs are large mostly because of network effects.
In the case of Microsoft, you say "network effects of their enterprise sales channel," when you really mean Microsoft had a large customer base to which they could quickly and easily deploy new products. The fact that one business had a sales agreement with Microsoft didn't necessarily increase the value of a sales agreement with Microsoft for a different business. (Maybe there are some network effects there, but they aren't obvious and I'm fairly sure you aren't talking about them.)
I think Microsoft did (and still does) benefit from network effects in a different way, related to collaboration: the more people who can open and use an excel spreadsheet, the more valuable it is to learn and use excel.
- exelius 9y agoWell, that's the thing... Microsoft wasn't selling directly to these companies. They had a network of resellers and system integrators. And basically, outside of a few niche industries, businesses basically had to use Microsoft by default. Once these system integrators were in, they would use those relationships to push new products -- because Microsoft. The more customers, the more product categories they own, and the more system integrators using Microsoft. It feels a lot like network effects to me -- but I think I was using a broader view of their non-consumer sales strategy (Ballmer was a freaking genius in this right -- just not so much as a product guy).
- mherkender 9y agoI don't think anything you're saying is untrue, but I do think you're ignoring how shady and unethical Facebook is when they feel like it. For example, they downgrade YouTube videos in people's feeds. There's no reason for that if they have a better product.
- spangry 9y agoWorth noting that there's two axes here as well: - Positive vs. Negative - Same-side vs. cross-side Network effects can be negative: if more people dine at your favourite restaurant you have to wait longer for a table. That's a negative same-side network effect. The reverse is true for facebook: more people signing up means more people to socialise with. When you add in app developers, then cross-side effects come in to play. More people using facebook is a positive cross-side network effect, because more users == bigger market for developer apps. It's mutually positive too: more developers means more apps, more choice etc. For advertisers, the cross-side network externality is only positive from their perspective: they like having a larger audience to advertise to, whereas users generally don't like ads. All of these combine to make facebook one hell of a sticky, and lucrative platform.
- flukus 9y ago> Network effects refer to a situation where the product becomes more valuable with more users. Which is the case with windows. Because the product has more users it becomes more valuable to developers/business, which then becomes more valuable to users.