Network Effects on the Picturephone
This academic article “Picturephone and the Information Age” goes in depth about the technological innovation released in 1964 by AT&T called the Picturephone, the first consumer product that offered live voice and video communication, and why it is deemed such a failure. Much of the article questions our notions of technological failure and criticizes the standard methods of “measuring” failure. The main point author Kevin Lipartito is attempting to convey is that technological ‘failures’ cannot simply be attributed to single things like price, or privacy infringement, marketing strategy, or even perceived customer wants/needs, since no element of technology or opinion about it is static. Furthermore, he also goes on to explain how this seeming ‘failure’ actually was extremely intrinsic in the evolution of technology, and that it followed the natural tradition of adapting technology to new needs. Although the product itself did not sell well, at a high price of $87.50/month with only 453 users, the development and implementation of such a product actually instantiated both new infrastructure construction as well as new future visions that led to the development and acceptance of personal computers and the Internet, which we now use for the functions Picturephone aimed to perform, through Skype, FaceTime, and the like.
While Lipartito challenges the typical idea of failure, he does acknowledge the fact that the product was not popular with consumers and that logical reasons for this involve network effects. The most clear reason which overlaps with the networks effect logic learned in class is that consumers act based on what others do and have; individual choices depend on group behavior, yet also vice-versa. In this case, the combination of a large market who for one reason or another did not typically value the product as highly as it cost and the fact that so few people initially had the product caused a situation like when consumers ‘guess’ slightly less than z’ and the users drop towards 0. In class, we always talk about a technology being a huge success or complete failure based on this initial guess and outcome, but as we can see from an example in this article, the fax machine took 10 years before being a self-sustaining product because of similar reasons. Lipartito also identifies how building a user base that encourages others to join is important, and that since demand is initially defined by new user groups (who typically are specifically interested in new technology), it would have been better for AT&T to release the product to a small interested group that could help improve the product instead of trying to reach a mass market from the start. If we imagine the visual of the multiple equilibria network effects graph, we can see how with a smaller, more invested group that more people would expect the product to be successful and also be wiling to pay more for it, driving the product to the higher stable equilibrium that would lead to great success. Then, once introduced to the mass market, these interested individuals may be able to sway the expectations past the tipping point. In any event, we can look at the general innovation of communication technology as one big network effects problem spread out in time, in which it took a long time to grow a user base wide enough to accept new technology and expect success, thus bringing it over the tipping point and increasing usage to the point where certain technology is ubiquitous.
http://www.jstor.org/stable/pdf/25148054.pdf?seq=1#page_scan_tab_contents