Apple’s success and information cascades
Most people know that apple sells an extremely high quantity of iPhones, but why? Is it solely because people think the product is superior to other phones or are there other factors? I would like to argue that people buying iPhones is partially due to informational effects and direct-benefit effects. As we learned in class, when many people make the same decision, many other people will make that same decision. This is either due to the information effect, direct-benefit effect, or both.
In the example of iPhone sales, the ‘early adopters’ of the product probably know how powerful the iPhone’s new processor is or how nice looking the new display is. This is why they buy the product; they have some information convincing them that the product is good. We can assume these are the people who preorder the iPhone and pick it up the day it comes out. Suppose your friend is one of these early adopters. You would then want to purchase an iPhone because you see your friend has one and assume they have some rational reason to purchase it. This causes an information cascade. More and more people will start buying the product because they see so many others using it.
The second effect I mentioned, the direct-benefit effect, occurs because of FaceTime. FaceTime is apple’s video calling app. It lets you video call only people with apple products such as iPhones, iPads, iMacs, and Macbooks. Let us suppose you own an android phone and all of your friends own iPhones. It would directly benefit you if you were to buy an iPhone because now you can FaceTime with them. This has promoted sales greatly for the iPhone as well as other Apple products. FaceTime could be the reason that many people are switching from android phones and BlackBerrys to iPhones. The direct benefit effect is the reason why iPhone sales are steadily growing rather than selling a lot on the release day and falling off(see the graph for Q4 2010 and Q1 2011). As more and more people use the iPhone and apple products, the more attractive and practical they become.
-Greg
http://en.wikipedia.org/wiki/File:IPhone_sales_per_quarter_simple.svg
http://www.apple.com/mac/facetime/