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Strategies & Market Trends : Gorilla and King Portfolio Candidates
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To: Thomas Mercer-Hursh who wrote (38841)2/2/2001 7:58:35 PM
From: Mike Buckley  Read Replies (1) of 54805
 
Thomas,

Network effects occur when one has a network. A star configuration of connections from a vendor to customers has no network effect, only volume. Network effects occur when the connections are many to many, i.e., where each new addition to the network gains not one connection, but connections to all existing members of the network. Then and only then does one have the potential for exponential growth in value from linear growth in the number of nodes.

You make a great point that all of us need to keep clear in our minds, but I think that view of network effects is a little too clear-cut, too black and white, when in reality there is a lot of grey area. As an example, the adoption of word processing software is not a network. Yet there are network effects at play when a company evaluating the purchase of word processing software determines that almost all of its suppliers and customers are using a particular word processing product. When deciding to purchase the same product, the company is deciding to join that particular "network;" similarly, to select a different product is a decision not to join that network. Yet no network as you strictly define it exists.

The reason understanding network effects is part of understanding Gorilla Gaming is that the "effect" strengthens the value chain and increases the cost of switching.

--Mike Buckley
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