scholarly journals Indirect Network Effects in New Product Growth

2007 ◽  
Author(s):  
S. Stremersch ◽  
Gerard J. Tellis ◽  
Philip Hans Franses
Keyword(s):  
Network Effects ◽  
New Product ◽  
Indirect Network Effects

scholarly journals Indirect Network Effects in New Product Growth

2007 ◽  
Vol 71 (3) ◽  
pp. 52-74 ◽  
Author(s):  
Stefan Stremersch ◽  
Gerard J Tellis ◽  
Philip Hans Franses ◽  
Jeroen L.G Binken
Keyword(s):  
Network Effects ◽  
New Product ◽  
Indirect Network Effects

scholarly journals Indirect Network Effects in New Product Growth

2007 ◽  
Vol 71 (3) ◽  
pp. 52-74 ◽  
Author(s):  
Stefan Stremersch ◽  
Gerard J. Tellis ◽  
Philip Hans Franses ◽  
Jeroen L.G. Binken
Keyword(s):  
Public Policy ◽  
Temporal Pattern ◽  
Network Effects ◽  
Management Practice ◽  
New Product ◽  
Prior Work ◽  
Indirect Network Effects ◽  
Prior Literature ◽  
Time Series Analyses ◽  
Network Markets

Indirect network effects are of prime interest to marketers because they affect the growth and takeoff of software availability for and hardware sales of a new product. Although prior work on indirect network effects in the economics and marketing literature is valuable, there are two main shortcomings. First, empirical analysis of indirect network effects is rare. Second, in contrast to the importance prior literature credits to the “chicken-and-egg” paradox in these markets, the temporal pattern (i.e., Which leads to which?) of indirect network effects remains unstudied. Based on empirical evidence of nine markets, this study shows that (1) indirect network effects, as commonly operationalized by prior literature, are weaker than expected from prior literature and (2) in most markets examined, hardware sales “lead” software availability, whereas the reverse almost never happens, contrary to existing beliefs. These findings are supported by multiple methods, such as takeoff and time-series analyses, and fit with the histories of the markets studied herein. For academia, the study identifies a need for new and more relevant conceptualizations of indirect network effects. For public policy, it questions the need for intervention in network markets. For management practice, it downplays the importance of the availability of a large library of software for hardware technology to be successful.

Sales Force Compensation Design for Two-Sided Market Platforms

2019 ◽  
Vol 56 (4) ◽  
pp. 666-678 ◽  
Author(s):  
Hemant K. Bhargava ◽  
Olivier Rubel
Keyword(s):  
Network Effects ◽  
Sales Force ◽  
Compensation Plans ◽  
Agency Relationship ◽  
Indirect Network Effects ◽  
Compensation Plan ◽  
Sales Agent ◽  
Sales Compensation ◽  
Sales Agents ◽  
Compensation Design

The authors study the use of sales agents for network mobilization in a two-sided market platform that connects buyers and sellers, and they examine how the presence of direct and indirect network effects influences the design of the sales compensation plan. They employ a principal–agent model in which the firm tasks sales agents to mobilize the side of the platform that it monetizes (i.e., sellers). Specifically, the presence of network effects alters the agency relationship between the firm and the sales agent, requiring the platform firm to alter the compensation design, and the nature of the alteration depends on whether the network effects are direct or indirect and positive or negative. The authors first show how the agent’s compensation plan should account for different types of network effects. They then establish that when the platform firm compensates the agent solely on the basis of network mobilization on the side cultivated by the agent (sellers), as intuition would suggest, it will not fully capitalize on the advantage of positive network effects; that is, profit can be lower under stronger network effects. To overcome this limitation, the platform should link the agent’s pay to a second metric, specifically, network mobilization on the buyer side, even though the agent is not assigned to that side. This design induces a positive relation between the strength of network effects and profit. This research underlines the complexity and richness of network effects and provides managers with new insights regarding the design of sales agents’ compensation plans for platforms.

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