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How Companies Grapple With Network Effects to Sell New Products

Rolling out a new product is always a nerve-racking process for employees of tech companies, whether those are multinational conglomerates or startups still in their first rounds of funding. Even companies with a loyal customer base and cohorts of fans experience backlash when they experiment with new designs and technologies. A potent example of this is Apple’s iterative process with the iPhone. Given that people are glued to their smartphones all day long, it is no surprise that any major change to the way their phone looks, feels or functions prompts a strong reaction. When Apple first took out the headphone jack with the iPhone 7 release, many Apple users were furious. “Taking the headphone jack off phones is user-hostile and stupid,” wrote Nilay Patel in the Verge. However, the hysteria eventually subsided and most Apple consumers adopted the “new” technology where the lightning port can operate as both a charging and headphones connector.

But not all companies are as successful at changing consumer preferences as Apple famously is. Microsoft only recently began regaining lost marketshare in the tablet and laptop market after years of stubbornly insisting that Microsoft’s old practices were good enough for consumers. Several topics from the study of networks can help shed light on why some technologies push the needle and gain widespread adoption, while others turn out to be failures.

Adoption of new technology is closely linked to diffusion of innovation, a concept that can explain why a product can fail to gain popular usage even if it has “relative advantage to existing practices.” Four factors impact the ability of a new technology to spread through a population: complexity, observability, trialability and compatibility. If a product is too complex, users may abandon it instead of learning how to use it. In terms of observability, if people can observe others using a new technology, they will be more likely to try it. Speaking of trying something, the third element is trialability, a process by which people can adopt a new technology by trial and error. Last but not least, it is crucial that the technology is compatible with the social system in which it is introduced.

On top of these factors, companies also need to consider initial adopters of their newly released products, because these early consumers can ultimately create a cascading behavior throughout their network of friends and connections. In other words, if there is an early adopter of a technology in a network/cluster of other potential customers (think nodes connected to each other), then depending on the threshold q, other consumers in the network or cluster will also change from their current technology to the new one. An interesting side note to consider is that weak ties (in social networks) have a certain “strength” in them because they have the ability to form local bridges between clusters in a greater social network. This not only means that they are “gatekeepers” that can promote a new technology in a completely different area of the network, but they can also communicate useful information from one cluster to another. Thus, if a company can find early adopters at the intersection of different social clusters, then they can substantially increase the reach of their new technology, saving time and money.

In sum, if a company is struggling to introduce a brand new product or technology into the market, it should pay close attention to the factors of diffusion of innovation and try to focus on early adopters that have links to various clusters in a social network.

Sources:

The Verge, headphone jack story: https://www.theverge.com/circuitbreaker/2016/6/21/11991302/iphone-no-headphone-jack-user-hostile-stupid

The Atlantic, Microsoft falling behind: https://www.theatlantic.com/technology/archive/2012/07/inside-bureaucracy-crippled-microsoft/326339/

Networks, Crowds, and Markets by David Easley and Jon Kleinberg.

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