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Apple Fanboy and Network Effects

The textbook defines the network effects as “for some kinds of decisions, you incur an explicit benefit when you align your behavior with the behavior of others”. In other words, users of a certain product add more value to the product itself by enlarging the society of users, thereby attracting more users to use the product. Apple is the one of the biggest beneficiary of the network effects. Apple products, as stated from one of last year’s Cornell weblog posts, are “priced significantly higher than a competitor’s comparable product(s).” Yes, Apple products are designed beautifully, but that is not the sole reason why people pay all that extra money for them. Mark Talbot’s blog that I found online has a great article that classifies Apple’s usage of network effects in three different categories.

First of all, Apple offers iMessage and Facetime services, which let the users of Apple products to message and video chat with each other free of cost. “As more users own iMessage compatible devices (iPhones and iPads), the value of owning these devices grow”, just like how telephone developed to become useful as more people had telephones at home. The special features of iMessage, such as being notified when the other person is texting to you and what time the other person has read a message, give that special edge the regular text message system does not offer.

The two-sided network effects also occur between the product users and application developers, further promoting more people to buy Apple products. As the number of iPhone and iPad users increase, so does the market for Apple’s iOS applications. Thus companies see the growing need for novel iOS apps, and hire more programmers to develop them. This also attracts more people to purchase Apple products to enjoy numerous apps, and bring a positive network effect between product users and program developers.

The most powerful characteristic of Apple products is the “intra-personal network effects”. Once you buy one Apple product, you learn that the more Apple products you get, the more added advantages there are. Airplay, a unique feature of Apple, enables videos streaming from one device to stream on a different device wirelessly. In other words, if you get tired of watching a video from the tiny screen of your iPod, you can simply press two buttons and stream that exact video on the TV monitor connected with Apple TV. I myself recently got Apple TV, and I plan on getting a Mac for my next laptop, so that I can watch my favorite TV shows or music videos on my TV for free, without constantly plugging in and out HDMI cable to my computer and my TV. Furthermore, iCloud is Apple’s unique way of storing and sharing data across multiple devices. By synchronizing your Apple products, any picture, document, or video that you save in an Apple device is also automatically saved in other devices you own. This conveniently backs up important data, and makes it much easier for you to access any data through any device. In short, “the more Apple devices you own, the more valuable each of those devices become.”

Only about a decade ago, no one expected Apple’s enormous success it enjoys nowadays. Apple’s exclusive software and hardware systems seemed to be a huge barrier to appeal to prospective customers. However, Apple has developed many fascinating services between its devices to not only gain new customers, but also make present users to buy more products. Its skillful usage of direct and indirect network effects has put Apple at the top of the market.






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Blogging Calendar

November 2012