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Why Apple is So Successful: Looking at Network Effects

Apple dominates the market for non-PC devices with products such as the iPad, iPhone, and iPod, so it’s not surprising that over 50% of US households own some sort of Apple product. Why has Apple been so successful? Apple has benefited from network effects.

The first type of network effect that Apple has benefited from is information effects. When consumers are looking to buy a new product, they look to see what’s popular in the market. Since Apple sells so many products, consumers looking to buy something assume that Apple product buyers had information that helped them choose an Apple product rather than a competitor’s product. Let’s consider the iPod. As mp3 players started to become more popular, shoppers all over the US had to decide which mp3 player to purchase. If a person didn’t have much knowledge of their own about a product to buy, they could assume that people who had already purchased an iPod must have had knowledge which convinced them to buy an iPod rather than a different mp3 player.

Apple has also benefited from the fact that its consumers experience the direct-benefit effect. Because Apple has been so successful, they are able to put a lot of money into resources for their customers. For example, Apple stores have products displayed so that users can use them and try them out before buying them. It’s beneficial to a buyer to become an Apple consumer, because then they can enjoy the benefits from being part of a large group of consumers. Apple is also able to offer their customers great customer service; with so many customers, they have money to spend on improving their customer service. One other example is the Apple App Store. Since so many people own Apple products, app designers want to create their apps for the Apple platform rather than other platforms. They know that having an app in the Apple App Store will expose it to more people, which will lead to more people buying the app. This also benefits Apple users because they have more apps available to them.

One other effect that has benefited Apple is network coordination. Consider person W who uses a non-Apple mp3 player because it has a higher payoff for him than using an iPod. As more and more of W’s friends starting using an iPod, the percentage of W’s friends using an iPod will rise. Eventually, this percentage will pass a certain threshold for W, at which point he will want to stop using his mp3 player and start using an iPod. With so many of his friends using an Apple product, his payoff is greater having an iPod rather than a different mp3 player. As more and more people use Apple products, more people will decide to switch to Apple products rather than their current products, because their friends and family are using Apple products. All of these network effects have played a role in helping Apple to become successful.

http://techland.time.com/2012/05/07/six-reasons-why-apple-is-successful/

-flash

Comments

One Response to “ Why Apple is So Successful: Looking at Network Effects ”

  • Mp3 players for sale

    I agree the current apple products are very popular, with a variety of features / functions such as iPod or i Phone almost everyone using it, because in terms of easy to use applications ranging from browsing, listen to music, get into the game, and the easier it is to get the application in addition to the free i Phone, hehehe

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