• 15 Mar 07
  

  eyal matsliah

  business ebay economics marketing network-economy network-effect social-web

  • In transportation infrastructure planning it has long been understood that the value of a system as a whole increases exponentially with linear increases in the number of nodes. Reason is that the network becomes more useful--you can go more places. This is known, but very frequently not taken into account,

  • Gupta says that he's currently

      

    working on understanding and modeling complex network structures such as those of MySpace.  Here the issue that we are grappling with is the tangible and intangible value of customers. In other words, customers provide tangible value to a firm through direct purchases but they also provide intangible value through network effects or word of mouth. > It is quite possible that some customers have low tangible but high intangible value. Traditional models would label such customers as low value and would miss a huge opportunity for a firm.
  • While heavy markering spending is required in the early days to attract a critical mass of buyers, the network effect itself becomes a larger attractant than marketing as the business grows, allowing a company to cut back its marketing budget over time.
  • (To put it another way, the network effect of a buyer on a seller was far stronger than the network effect of a seller on a buyer.
  • But a recent paper by three business-school professors - Sunil Gupta, Carl Mela, and Jose Vidal-Sanz - offers a new approach for estimating the value of nonpaying, or, as the professors term them, "free," customers.
  • What's the value of a customer who doesn't pay you anything? If you're running a hot dog stand, the answer is probably "zero." But if you're running a two-sided market - a market, like eBay or Monster.com or AdWords or YouTube or Digg or even Second Life, that needs to attract both buyers and sellers (or content generators and content consumers) - the answer may be "a lot."

  • Customer value and the network effect

     

    March 08, 2007

  5 more annotations...

• 09 Mar 07
  

  Stephen Walli

  economics business network marketing customers markets delicious

• 08 Mar 07
  

  Chrys R

  business customers network socialnetworks

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