Question 1

Staying power refers to the:

Accepted Answer

Staying power refers to the long-term viability of a product or service, indicating its ability to remain popular, relevant, and in demand over time.

Question 2

Sure, network effects are valuable, but why? List the three sources of the value (cited in our textbook & in class) that fuel the competitive advantage of network effects.

Accepted Answer

Exchange, Staying Power, Complementary Benefits

Question 3

One way firms seek to strengthen their platforms and encourage third parties to develop complementary goods is by offering ___________.

Accepted Answer

APIs or Application Programming Interfaces

Question 4

Which of the following terms is used as an alternative to switching costs?

Accepted Answer

Lock-in is often used interchangeably with switching costs, as it describes a situation where a customer is dependent on a vendor for products or services, making it difficult or costly to switch to another vendor.

Question 5

Which of the following products or services is not subject to network effects?

Accepted Answer

Network effects occur when a product or service becomes more valuable as more people use it. Banking services, video game consoles, social networks, and cell phone services all benefit from network effects because their value increases with the number of users. Snack chip manufacturing does not exhibit network effects because the value of snack chips does not depend on how many people are consuming them.

Question 6

A firm can spend no money and time, yet expect to enhance its offerings, by:

Accepted Answer

Allowing other firms to contribute to its platform can enhance a firm's offerings without requiring additional investment in money or time from the firm itself. This approach leverages external resources and innovation.

Question 7

Every product or service subject to network effects fosters some kind of exchange.

Accepted Answer

Network effects occur when a product or service becomes more valuable to its users as more people use it, often fostering an exchange of value, information, or services among its user base.

Question 8

Metcalfe's Law is also known as:

Accepted Answer

Metcalfe's Law states that the value of a telecommunications network is proportional to the square of the number of connected users of the system (n^2). This principle is often associated with the concept of "network externalities," where the value of a product or service increases as more people use it.

Question 9

Network effects do not influence all consumer products or services.

Accepted Answer

Network effects primarily influence products or services whose value increases as more people use them, such as social media platforms or communication services, but do not significantly affect products or services that do not rely on user interaction or connectivity.

Question 10

Which of the following factors represents one of the sources of value derived from network effects?

Accepted Answer

Staying power is a source of value from network effects because it reassures users that the service or product will continue to be available and supported in the future, encouraging more users to join and stay with the network.

Question 11

Many firms attempt to enhance their network effects by creating a platform for the development of third-party products and services that enhance the primary offering.

Accepted Answer

By creating a platform for third-party development, firms can enhance their network effects as each new product or service adds value to the primary offering, attracting more users and developers, thereby creating a more valuable and robust ecosystem.

Question 12

The higher the value of a user's overall investment, the more they are likely to consider the staying power of any offering before choosing to adopt it.

Accepted Answer

Investors with higher overall investment values tend to be more cautious and considerate about the long-term viability and staying power of an offering before adopting it, as they have more at stake and seek to minimize risks.

Question 13

_____ are products or services that add additional value to the primary product or service that makes up a network.

Accepted Answer

Complementary benefits are products or services that add extra value to the primary product or service, enhancing its appeal and functionality.

Question 14

Staying power is important for consumers of technology products because investment over time usually greatly exceeds the initial price paid for a product or service

Accepted Answer

Staying power is crucial because the total cost of ownership for technology products often includes ongoing expenses such as software updates, subscriptions, and maintenance, which can surpass the initial purchase price over time.

Question 15

Network effects are also known as _____ Law or Network ____________.

Accepted Answer

The answer of Network effects are also known as _____...

Question 16

In the absence of network effects, the value of a product or service increases as the number of users grows.

Accepted Answer

Without network effects, the value of a product or service does not inherently increase as the number of users grows; the value is more directly tied to the product's inherent qualities, features, and utility rather than its user base size.

Question 17

Windows OS, the iPhone, the Wii, and Facebook's application programming interfaces allow for the development and integration of complementary goods by third parties. Based on this evidence, all these products or services are said to be _____.

Accepted Answer

These products and services are considered platforms because they provide a base upon which other companies or developers can build their own products or services, enhancing the original platform's ecosystem and value.

Question 18

In the context of network effects, the term "network" refers to either wired or wireless systems that connect computing components.

Accepted Answer

In the context of network effects, the term "network" refers broadly to a group or system of interconnected people or things, not just to physical wired or wireless systems. It encompasses any scenario where users or participants benefit from the size and connectivity of the network, such as social media platforms, online marketplaces, and software ecosystems.

Question 19

High switching costs serve to weaken the value of network effects as a value asset.

Accepted Answer

High switching costs actually strengthen the value of network effects by making it more difficult for users to switch to competing products or services, thereby increasing the value of staying within the network.

Question 20

_____ are products and services that allow for the development and integration of complementary goods.

Accepted Answer

The answer of _____ are products and services that allow...

Quiz 8: Understanding Network Effects: Strategies for Competing in a Platform-Centric, Winner-Take-All World