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MI021 / CS021 Computers in Management

MI021 / CS021 Computers in Management. Oct. 3, 2006 Network Effects, eBay case, W.R. Hambrecht’s OpenIPO www.gallaugher.com. Issues Covered. Network Effects Defined Characteristics of markets & competition when present Examples Auction Models liquidation vs. market efficiency auctions

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MI021 / CS021 Computers in Management

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  1. MI021 / CS021Computers in Management Oct. 3, 2006 Network Effects, eBay case, W.R. Hambrecht’s OpenIPO www.gallaugher.com

  2. Issues Covered • Network Effects • Defined • Characteristics of markets & competition when present • Examples • Auction Models • liquidation vs. market efficiency auctions • Priceline vs. eBay • eBay case – growth, comp. adv., and challenges • IPO markets & struggles of WR Hambrecht

  3. Understanding Network Effects (a.k.a. Network Externalities, Metcalfe’s Law) buyers • When present, product or services become more valuable as its installed base expands. • Why? Users crave… • Exchange opportunities • Stability • Extrinsic Benefits • Characteristics: Early competition, bandwagons, monopolistic tendencies • ‘Best’ products don’t always win. Effect on innovation • Lowers competition with established standard • Increases innovation within standard sellers Users (Windows, PS2) Developers (programs, game titles) members

  4. auction auction Auction Formats Liquidation Auctions: (e.g. Priceline) Seek lowest price on widely available goods and services Seek first to maximize existing channels & reduce inventory suppliers customers disincentives to use auction shrink supply over time Market Efficiency Auctions: (e.g. eBay) Auction format is favored over the inefficiency of existing channels Seek access to unique / rare products or services suppliers customers incentives to use auction increase supply over time

  5. Leading Global Retailers

  6. Shop, Buy/Transact, Communicate Search, Be Entertained

  7. Dependent on paid & natural search

  8. IPO Inefficiencies pays a 7% fee $27/share $45/share small Investors Institutions & large investors Underwriting syndicate small Investors The Firm small Investors

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