Judith, thanks for responding to my query and argument in favor of the proposition: Network effects add value to the analysis of gorilla games by identifying the dynamic driver of an inflection point in cumulative product adoption during the TALC.
I made four specific key claims in support of that proposition: (1) Within the TALC, network effects describe a dynamic of a suddenly noticeable and sharp inflection point in cumulative adoption when the diffusion of an innovation reaches critical mass; (2) Moreover, network effects are also the dynamics that drive, power, or amplify the process of adoption. (3) As in Metcalfe's law, network effects amplify the value of arithmetic competitive advantages exponentially to create explosive value when the interaction of competitive advantages tips sharply in favor of the dominant company. (4) The Tornado of hypergrowth in the GG is specifically driven by a dynamic inflection that combines an indirect network effect of a value chain forming around a compatible total solution and a direct network effect of mass adoption by consumers.
If I may, I'd like to comment on three of your points. First, you say, "Metcalfe's law does not have to prevail. There can be diminishing returns in a network where every addition brings fewer returns." If I understand your point, and I may not, this example would be illustrative: if you continue to add railroad cars to an engine, its speed-power will diminish above a critical level. However, network effects are most often discussed as increasing returns when these effects involve information or knowledge products, with software being a typical example, because the high sunk (or up-front) costs and the low marginal (or incremental) costs create very favorable margins with the potential for unlimited demand-side scaling. Have I missed your point here? If so, please elaborate so that we might specify the conditions that create increasing or diminishing returns.
Second, I believe we are in general agreement that network effects flesh out the Why and the How when a gorilla has dominant power. My answers to the How are specific. Why? The gorilla company fulfils the six structural criteria that define a gorilla. How? The dynamics of combined direct and indirect network effects drive the process of cumulative adoption, and so on, as specified by the four claims. Thus, I concluded the proposition is supported because understanding the process of cumulative adoption adds value to knowing that the structural criteria have been met.
Third, you wrote, "…Moore seems to be saying explicitly that network effects may produce a geometric increase in the members of the network without yielding any appreciable returns." Did I miss this? I could not find any explicit statement in Moore about "network effects." So your "seems to be saying" might mean that this is your interpretation of what you believe is implicit in his remarks.
Moore said that the market had fallen "under the spell of category power." A whole sector [dot.coms] was bid up because "all the emphasis was on catching the next technology wave." He urged management to get back to basics. Moore's prescription was to: (a) focus the entire company on the product (or service) marketing plan, (b) to ensure that it executes flawlessly on basic go-to market capabilities, (c) directed toward dominating a target market, (d) in order to increase market share power for the company, and (e) create a platform for increasing shareholder value for the company.
For me, the interesting quote was when Moore said, ". . . Darwin selects for companies that can accumulate their own power, granting them more power as partners and customers are attracted to their success." He continued by saying the most universally recognized form of marketplace power is dominant market share and urged this core chasm prescription: find a market that you can dominate and then dominate it as fast as you possibly can.
My interpretation of the thrust of Moore's Back to Basics is: differentiating your product (as a source of competitive advantage) and executing your marketing plan to dominate, at least, a particular niche will cause more partners and customers to be attracted to your success.
Partners and customers are attracted to the market share leader, who is by definition, "popular." Also, by definition, "network effects exist when the value of a good increases because the number of people [this includes partners and customers] using that good increases." My four claims include the ideas that networks effects both describe a sharp, upward inflection in the number of people using the good and are causal in creating that inflection upward by reaching critical mass. I claim that this is so because network effects amplify the competitive advantages [as an instance] of differentiated products exponentially. If, after crossing the chasm, a company should succeed in meeting the six structural criteria of a gorilla, I claim that the process called a Tornado is driven by combined indirect and direct network effects. Darwin selects for dominance in market place power, a dominance whose causal processes might be described as network effects that continually increase the value of a good as people hop on the bandwagon.
Moore did not say explicitly anything that I claim. I wish he had because I like the ideas. |
