Apple’s Success and Network Effects
As discussed in class, some commodities’ value grows with the number of people who use them. This is called the positive network effect, in that as more people use a good, more people are motivated to also join the system of the good. One notable company that relies on this is Apple, which harnesses the power of this network effect and builds it’s success and products on it. The article below describes how Apple uses this phenomenon in its business strategy and how it contributes to the company’s success by expanding upon the three types of network effects.
The first type is the typical direct network effect that we learned in class. Apple creates its products with Apple-centric features, like FaceTime, iMessage, and Game Center. Any person with an Apple device has the ability to communicate easily with any other person also in ownership of such a device. As more people own compatible technology, the value of also owning an iPhone, iPad, or Macbook increases. Another feature that Apple invests in is the extensive App Store, which benefits from the 2-sided network effects. If there is a large market population (the owners of Apple devices) there is more value for app developers to invest and concentrate on IOS apps. A greater number of developers mean statistically better made apps and more variety, which increases the value of owning an IOS device to be able to use these apps. This creates a symbiotic relationship between the app developers and the Apple customers. The last type of network effect the article mentions is the intra-personal network effects, in which Apple makes it beneficial to buy into the Apple ecosystem by making each different device (phone, tablet, laptop) compatible with one another. Data can be shared via the iCloud between different devices owned by the same individual, making it advantageous to own multiple devices from the same company.
Apple’s growth and business strategy is intrinsically tied to network effects. And it’s been working, as the company has been expanding. The ability that Apple has to grow its market population is a tribute to its business savvy and is a main reason to its success. It’s probably that the company will continue along this line of strategy in the future, with more and more features and devices that make it advantageous to be a part of the Apple ecosystem.
Sources:
http://www.marktalbot.ca/2012/03/05/the-three-types-of-network-effects-driving-apples-sales/