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Network effect beneficial for the iPhone

Behind the Rubik’s Cube, Apple’s iPhone has been the greatest selling product of all time. How much can the iPhone’s success be attributed to a given individual’s valuation of the product based on its quality, versus how popular it is? In terms of what we’ve discussed in class; which is a greater factor for the iPhone’s success, p(x) (valuation based on price/quality) or f(z) (valuation based on how many people use the product)? The article discussed here sheds some light on the issue. The article describes a simple prank in which two dutch youtubers modified iPhone hardware to run Android, fooling people into believing that they were looking at Apple’s upcoming iOS9. In their video, they presented the faux iPhone to current apple users, from which it received near universal acclaim.  So what does this mean in terms of p(x) and f(z)?

It seems that apple users (from an admittedly low sample size) seem to find androids quality on the level of iOS, if not more. Due to majority of Android powered phones costing less than iPhones, in a scenario where only p(x) was considered and not f(z), more people would be inclined to buy an Android phone over the iPhone (lower price with same quality wins more costumers). That being understood, we can see just how strong network effects work in Apple’s favor. People’s consideration of how many people use a certain operating system seems to have such a large influence on total valuation that it overcomes their own private valuation of a product. So even though the article demonstrates that p(x) for android is greater than p(x) for iOS, apple still has the edge in the market as f(z) is so strong that p(x)f(z) is still larger for the iPhone.




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November 2015