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To: Don Mosher who wrote (38836)	2/2/2001 11:29:01 AM
From: JAPG	Read Replies (1) \| Respond to of 54805

Don, To simplify it a bit, for a given product: 1) The area underneath the TALC curve is a proxy for the size of the network . 2) The speed of adoption in such network is the first derivative of the TALC curve. 3) The second derivative on the TALC curve represents the acceleration at which such network is being created. Look for positive acceleration at the early majority stage and deceleration in the expansion of the network in the Late majority stage. Take care JAPG

To: Don Mosher who wrote (38836)	2/2/2001 11:38:52 AM
From: Thomas Mercer-Hursh	Read Replies (3) \| Respond to of 54805

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. It seems to me that there are multiple issues getting muddled here. One issue is that certain types of products, notably software, but also chips, have very high upfront costs and relatively low per unit costs. This type of product benefits greatly by high volume sales because the up front costs can be amortized across a large number of units. This is true whether or not the company incurring the up front cost maintains any connection at all with the customers beyond having once sold them something. There is no network effect involved here. 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. One of the ways in which a network connection and a star configuration differ dramatically is that the incremental cost of a new node in a network starts and remains low throughout growth. There may be some effect of scale on cost due to economies of scale in the infrastructure or in ease in becoming a node, but the typical network is one in which perceived value in making the connection exceeds the cost of making a connection even when the network is small so that when the network grows and its value increases, the contrast becomes dramatic. In a star configuration, however, there is a unique dependence on the central node. While it too may enjoy some economies of scale, it can also experience difficult and expensive growth transitions when the number of connections exceeds the capability of existing systems to support those connections.