Question

How can network effects influence the fate of a technology?

Answer 1

Every market is impacted by network effect. Network effect is the impact that is created when an additional consumer comes to the foray or the product/service and how it impacts others.

When it comes to technology, network effect has multiple impact on the technology. Some of them are

• Cost reduction: increase in adoption of new technology drastically brings down the novelty and thus reduces the cost of the technology. Consider computer technologies for example. Once upon a time, people could not afford computers. Nowadays everybody has one.
• Interconnectivity: as number of user increases in a network of consumers, a need for interconnectivity and more features are generated. As a result, the technology domain experiences a push for interconnectivity between different and homogenous technologies. Internet is a very good example but we could also look at home wifi systems as an example to this.
• Evolution and innovation: one of the positive sides of network effect in technology is that I causes evolution in the technology. Due to the competitive business structure in the global market, the producers and manufacturers constantly push for superior products and services. As a result we experience innovation and evolution of technology.