Name: Ume Aiman

Roll no :16B-015-BS
Management information system
Assignment
What is network effect?
When new member is added to a network it will increase the value of product or service to all
other user. The increase value is in the terms of reduce cost higher liquidity, strong community
and deeper relationship.

13 different types of network effect that fall under five broader categories
Physical
Protocol
Personal utility
Personal
Market network
Marketplace (2 sided)
Platform (2 sided)
Asymptotic marketplace
Data
Tech performance
Bandwidth
Fall into
Direct
2-Sided
Data
Tech
Social
Network effect are not about creating viral effect it’s all about creating defensibility
Problem:
Amazon is a little harder to classify — that’s kind of entailed in the name The Everything Store
but generally brands are much less important than they are in a world of limited shelf space, and
few people even realize they are buying from the 3rd party merchants that make up over half of
Amazon’s sales
 The Network Effect Spectrum Of AMAZON

Basic definition

Another way to consider this spectrum is in terms of user-related network effects. The idea of a
network effect is that an additional user increases the value of a good or service, and indeed all
of these companies depend on network effects. However, the type of network effect differs
considerably, as well as the extent to which the network effect directly improves a company’s
core product.

What is amazon network effect?

Amazon’s network effect is more subtle:

There is an aspect where your shopping on Amazon improves your experience through things
like rankings, reviews, and data feedback loops. Just as important, though, are two additional
effects: first, the more people that shop on Amazon, the more likely suppliers are to come onto
Amazon’s platform, increasing price and selection for everyone. In other words, Amazon,
particularly as it transitions to being more of a commerce platform and less of a retailer, is a two-
sided network. There is one more factor though: Amazon’s incredible service rests on hundreds
of billions of dollars in investments; that fixed cost investment has to be borne by customers at
some point, which means the more customers there are the less any one customer is
responsible for those fixed costs (this manifests indirectly through lower prices and better
service)

Running towards the long run benefits by neglecting the short term loss

Amazon’s a great example of this. Amazon aims to kill all 3rd party sellers, yet brands CANNOT
afford not to sell on Amazon .The rewards are too great. Like eating fast food, it is great in the
short term and deadly in the long run.
By building the West’s strongest ecommerce marketplace (Alibaba and Taobao in China are
actually stronger), Amazon has become untouchable. Brands have to play ball and so do the
regulators. Imagine the senator or congressman who costs his district a shot at Amazon’s 2nd
HQ? No point running for re-election then. Consumer’s love Amazon. It is fast, easy, cheap and
convenient. You can order ANYTHING at the click of a button and have it delivered ASAP
Conclusion:
Amazon’s network effect is in full swing, out of the four tech giants - Amazon - has the best
chance to reach $1 trillion in market capitalization first. That means more than doubling its
present value of $478 billion and leaping past Apple, Google and Facebook, which investors
now value more highly