The Network Effect Helix

Roman Beck, Institute of Information Systems Johann Wolfgang Goethe University, Tim Weitzel, Institute of Information Systems Johann Wolfgang Goethe University, Daniel Beimborn, Institute of Information Systems Johann Wolfgang Goethe University, and Wolfgang König, Institute of Information Systems Johann Wolfgang Goethe University

3/14/2008
(Original Publish Date: 1/9/2003)

The development and diffusion of network markets and underlying standards is an important domain in IS research. Yet, there is no sound theory nor practice to fully understand the complex mechanisms behind networks of users who are tied together by compatibility requirements as is frequently witnessed in information and communication networks. The goal of this paper is to identify key determinants of the diffusion of network effect goods by studying the battle between two mobile communication standards to propose possible diffusion paths. In the early phase of diffusion, the adoptor of the new standard benefits from direct network effects with other adopters and the estimated indirect network benefits when additional content and services will be provided. The diffusion process starts therefore with early adopters due to the existence of direct network effects in the first place and force-up by additional indirect network effects which attract further adopters. We call this effect the network effect helix, with positive feedbacks on the ongoing diffusion process.