A Theoretical review of network effects on platform products

Network effects appear to increase the benefits that consumers derive from a product as the user set expands. In platform products, they are known as one of key mechanisms of being successful on that business. This is mainly because they generate the incentives for users in choosing the platform. For examples, many business achievements, such as VHS video, Microsoft windows OS and NTT Docomo i-mode have exhibited network effects. The purpose of this study is to present a new elaborated concept of network effects and eight perspectives in platform products with layered structure which constructed by three players i.e. platform leaders, complementary products (complementors) and users. Firstly, there have been many studies about network effects and almost all studies have argued the influence to end-users, based on the network scale (the number of subscribers). However, the study alludes the necessity of network effects with the significance of linkages between members i.e. access frequency and weight, as well as the number of linkages between members. Secondary, the study classifies four categories and eight perspectives working between couples of layers among platform products, complementary products and users. Four categories are as follows, 1. Network effects between users, 2. Network effects between complementary products (complementors), 3. Network effects between a user and complementary products (complementors), 4. Network effects between a complementary product (complementor) and users. Consequently, the study offers two suggestions. The First one is a new elaborated concept regarding network effects i.e. the significance of linkages between members. The other one is four categories between couples of layers among platform products, complementary products and users, compared with two conventionally categories between products and users typically by Katz & Shapiro (1985). In addition, an actual case is presented to each four category, which exhibits the theoretical difference concerning network effects between the study and that of Katz & Shapiro (1985).