NET Institute Working Paper #08-30, 2008
This paper examines potential adopters of a video-messaging system to see if network fluidity affects network effects.
Firms planning to use social networks to spread network technologies need to know how to adjust their strategy to account for underlying social network fluidity.
- Using an extensive dataset on the adoption of an internal video-messaging system within one firm, this paper finds that the empirical structure of network effects reflect interaction patterns within networks.
- When the network structure was stable, adoption cascades were confined to small subsets of people who interact with each other.
- When the expected communication network became less stable, potential adopters looked more broadly at the network and were more responsive to adoption by a broader circle of potential contracts.
- This paper underscores the fact that network effects are very closely linked to the underlying social network.
- This is the first empirical study of network effects to include network topology and stability directly in the estimation.
- This paper also suggests that an often made assumption that network effects for communications and network technologies depend on the total number of subscribers is incorrect. In most circumstances, only the smaller subset of people with whom a potential adopter interacts play a significant part in the adoption decision.