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Interoperability[edit]

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Interoperability has the effect of making the network bigger and thus increases the external value of the network to consumers. Interoperability achieves this primarily by increasing potential connections and secondarily by attracting new participants to the network. Other benefits of interoperability include reduced uncertainty, reduced lock-in, commoditization and competition based on price.[1]:229

Interoperability can be achieved through standardization or other cooperation. Companies involved in fostering interoperability face a tension between cooperating with their competitors to grow the potential market for products and competing for market share.[1]:227

Open versus closed standards[edit]

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Find sources: "Network effect" – news · newspapers · books · scholar · JSTOR (March 2018) (Learn how and when to remove this template message)

In communication and information technologies, open standards and interfaces are often developed through the participation of multiple companies and are usually perceived to provide mutual benefit. But, in cases in which the relevant communication protocols or interfaces are closed standards the network effect can give the company controlling those standards monopoly power. The Microsoft corporation is widely seen by computer professionals as maintaining its monopoly through these means. One observed method Microsoft uses to put the network effect to its advantage is called Embrace, extend and extinguish.

Mirabilis is an Israeli start-up which pioneered instant messaging (IM) and was bought by America Online. By giving away their ICQ product for free and preventing interoperability between their client softwareand other products, they were able to temporarily dominate the market for instant messaging. Because of the network effect, new IM users gained much more value by choosing to use the Mirabilis system (and join its large network of users) than they would using a competing system. As was typical for that era, the company never made any attempt to generate profits from their dominant position before selling the company.

Examples[edit]

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This article is missing information about credit cards. Please expand the article to include this information. Further details may exist on the talk page.(February 2011)

Financial exchanges[edit]

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Stock exchanges and derivatives exchanges feature a network effect. Market liquidity is a major determinant of transaction cost in the sale or purchase of a security, as a bid–ask spread exists between the price at which a purchase can be done versus the price at which the sale of the same security can be done. As the number of buyers and sellers on an exchange increases, liquidity increases, and transaction costs decrease. This then attracts a larger number of buyers and sellers to the exchange.

The network advantage of financial exchanges is apparent in the difficulty that startup exchanges have in dislodging a dominant exchange. For example, the Chicago Board of Trade has retained overwhelming dominance of trading in US Treasury bond futures despite the startup of Eurex US trading of identical futures contracts. Similarly, the Chicago Mercantile Exchange has maintained a dominance in trading of Eurobond interest rate futures despite a challenge from Euronext.Liffe.

Software[edit]

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There are very strong network effects operating in the market for widely used computer software.

For many people choosing an office suite, prime considerations include how much value having learned that office suite will prove to potential employers, and how well the software interoperates with other users. That is, since learning to use an office suite takes many hours, users want to invest that time learning the office suite that will make them most attractive to potential employers and clients, and they also want to be able to share documents. Similarly, finding already-trained employees is a big concern for employers when deciding which office suite to purchase or standardize on.

In 2007 Apple released the iPhone followed by the app store. Most iPhone apps rely heavily on the existence of strong network effects. This enables the software to grow in popularity very quickly and spread to a large userbase with very limited marketing needed. The Freemium business model has evolved to take advantage of these network effects by releasing a free version that will not limit the adoption or any users and then charge for "premium" features as the primary source of revenue.

Molti siti web traggono benefici da un effetto di rete. Un esempio sono i marketplace online. Infatti, piattaforme come eBay non sarebbero così utili e funzionali se il sistema di aste non fosse così competitivo. Più il numero degli utilizzatori di eBay aumenta, più le aste diventano competitive, innalzando il prezzo delle puntate per aggiudicarsi l'oggetto d'asta. Questo rende più proficuo la vendita su eBay e porta più venditori sulla piattaforma stessa, comportando un abbassamento dei prezzi dovuto ad un aumento dell'offerta che allo stesso tempo viene sempre più diversificata. Essenzialmente, con l'aumento degli utenti i prezzi diminuiscono, aumenta l'offerta e l'utilità percepita.

Gli effetti di rete, furono adottati come spiegazione di alcuni business models di fine anni '90 basati prevalentemente sull'attività online (dot-com business model). Queste imprese operarono con la convinzione che quando affiora un nuovo mercato contenente forti effetti di rete, le aziende dovrebbero interessarsi a far crescere le proprie quote di mercato piuttosto di realizzare profitti. Questo perchè le quote di mercato determinano quale impresa può settare degli standard in ambito tecnologico e di marketing e gettare così le basi per una concorrenza futura.

I siti di social network sono ottimi esempi. Più persone si registrano alla piattaforma, più quest'ultima diventa utile per gli utenti.

Alexa Internet uses a technology that tracks users' surfing patterns; thus Alexa's Related Sites results improve as more users use the technology. Alexa's network relies heavily on a small number of browser software relationships, which makes the network more vulnerable to competition.

Google has also attempted to create a network effect in its advertising business with its Google AdSense service. Google AdSense places ads on many small sites, such as blogs, using Google technology to determine which ads are relevant to which blogs. Thus, the service appears to aim to serve as an exchange (or ad network) for matching many advertisers with many small sites (such as blogs). In general, the more blogs Google AdSense can reach, the more advertisers it will attract, making it the most attractive option for more blogs, and so on, making the network more valuable for all participants.

By contrast, the value of a news site is primarily proportional to the quality of the articles, not to the number of other people using the site. Similarly, the first generation of search sites experienced little network effect, as the value of the site was based on the value of the search results. This allowed Google to win users away from Yahoo! without much trouble, once users believed that Google's search results were superior. Some commentators mistook the value of the Yahoo! brand (which does increase as more people know of it) for a network effect protecting its advertising business.

Rail gauge[edit]

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The dominant rail gauge in each country shown There are strong network effects in the initial choice of rail gauge, and in gauge conversion decisions. Even when placing isolated rails not connected to any other lines, track layers usually choose a standard rail gauge so they can use off-the-shelf rolling stock. Although a few manufacturers make rolling stock that can adjust to different rail gauges, most manufacturers make rolling stock that only works with one of the standard rail gauges.