Network Effects – Internet of Things Technology
We know of network effects that originate from widespread adoption of technologies that are compatible or interact with each other. Rise in Internet of Things, or IoT, technologies is another increasingly popular trend that reflects the power of network effects. Examples of IoT technologies range from consumer products, such as smart refrigerators, to smart city solutions, including smart electricity grids.
One of the key aspects of IoT technologies is the ability to collect data about how devices are being used among other useful information that can be used to improve these devices. For instance, autonomous cars would be an example of IoT technologies given their ability to collect data on drivers and use it to improve their own operation. Housley and Tenorio talk about how the development of AI will enable even more data to be rapidly analyzed and used to improve products and devices, known as the “data network effect.” They also mention “robotics network effect,” where smart robots can make real-time decisions and navigate the environment better using this data.
These examples embody the principle of network effects that we learned in class because the more people adopt and use a certain IoT technology, the more data that can be collected to improve that technology and maximize the utility it brings to everyone. The use of an IoT device contributes to the welfare of everyone using that device, which is a form of a positive externality. However, with the rise of these IoT devices and recent trends concerning technology companies, consumers are becoming increasingly wary of privacy infringements and data that’s being collected on them. This might result in tougher regulations and scrutiny on the practices revolving the development and improvement of these devices, diminishing the network effects.
Sources: Housley and Tenorio – https://venturebeat.com/2017/11/29/ai-innovation-will-trigger-the-robotics-network-effect/