Strategy for Information Markets/Network Externalities/Networks and Network Structure

When can the structure of the network(s) be completely abstracted, and when is it important to think about who's connected to whom? When analyzing networks we tend to completely abstract them so we can make generalizations of how all networks work. However, we need to think about what interactions we are not taking into account. Some important factors are that some connections are stronger than others, some connections are more influential and some can connect more directly. When we abstract a network these factors are left out and these factors could have a major influence on the network and how the network actually works.

Importance of Networks

In order to grasp the multiple facets of the structure of networks it is important to understand what a network actually is. The internet is basically a complex network of computers connected together with each other. While the digital information source of the World Wide Web is a complex network, also consider that society as a whole is a network of people connected by friends, family, and professionals alike. An important role to comprehend is that networks play in shaping the behavior of most complex systems including that of the information network. When looked upon in a general point of view, it can be seen that most networks are relatively similar in nature. The ever-growing populace of the social network is really not at all that different from the somewhat newly created internet.

Information Networks

While the science of network studies is important to understanding the complexity of operations, the most vital to review is the workings of the information network. Information networks are networks that transmit information in variable human and technical networks to enrich knowledge, business, or social facets of society. In many situations, information technology is used in contrast to biological networks or social networks research. There are multiple varieties of collected networking used to distribute and share information. When taking into account the source of information networks, you usually refer to networking technologies such as wireless communications and the World Wide Web for distributing and sharing this information amongst the public. Basically, information networks are used primarily to exchange information by human institutions such as corporations, educational institutions, research companies, and the human public in general.

Virtual and Real Networks

Real networks are networks that are tangible structures where there are physical connections bringing together each player within the network. For example, trains are real networks because steel and wood are needed to make the tracks which work as the concrete links between the different areas of the network. Users must physically use these tracks to stay connected within the network. In contrast, a virtual network is defined by having a structure that is more of a commonality (typically associated with computers). These networks do not need essential hardware that physically makes the path of each connection. For example, the popular website known as Facebook is a virtual network because there is no need for tracks, cords, or cables to be apart of the network.

Network Structure Variations

In any organization which focuses on information distribution, they set up their network which will be fully capable of processing, exchanging, and distributing the information required for the tasks at hand. The different types of network forms can be looked upon as network patterns which occur and repeat in multiple settings. There are many different approaches an organization can take when developing the structure of their network. They can aim towards creating a network in which their product will provide better performance in comparison to a competing network. However, a network can also focus more towards compatibility in the hopes that users will rely more on this in comparison to a better performing product without compatibility. An organization that uses the openness strategy is critical when they are not strong enough to dictate technology standards on their own. This is also the case that occurs naturally when multiple products must work together and establish coordination in compatibility. Only organizations with a strong hold upon the market can exercise a strategy of control over their network. In these situations organizations are able to unilaterally control product standards and interfaces. One good example would be that of Microsoft and AT&T in the later years. Organizations must consider who's connected to whom in their networks when they implement network structures such as these.

Abstract Network Structure

When considering an abstract network structure, you are dealing with the customers and clients involved within a network and why they are there. These relationships between customers and clients in a certain network could change how the network behaves, which would lead to a bad model. One influencing factor of a network would be that of network effects within a network structure. This relates to the influence of the structure of connection patterns between already existing customers and clients, those of whom are already satisfied. Second, take into account the influence of already existing clients on those who would be potential clients looking to join the network and why. This also relates to analyzing existing customers and the influence they would have on new customers joining the network and why. Depending on the availability of certain data and legal constraints, a network promoter can use some of these variables to identify potential marketing targets in order to influence the adoption process within a network and consider whom will join. This strategy is looking at all of these factors and is not abstracting the network.

In relation to whether or not a network should be abstracted, network effects must be taken into account when considering the number of people desired within the network. A vital part about networks that users mull over is mainly about connecting with other users. Take for example social networking such as Facebook, Myspace, or Twitter. In a study done by the Haas School of Business at the University of California Berkeley, they considered not the “network growth or evolution, but focused on the diffusion process of an existing network.” In the study, they found that as a member in a social network such as these, that being a in a cluster means network friends actually know each other as opposed to having many friends who do not know each other. This is important in the sense that it demonstrates that beyond the overall size of the network, strong network communities are more prevalent to word of mouth influence. Ultimately they found that, “Consequently, if one were trying to maintain his influence in the network, he would also have to maintain the same density of his relationships when the number of contacts grows.” This example is looking into other factors that would effect the networks behavior and therefore the network is not being abstracted.

A good example when considering whether a network should be abstract or not, is displayed with the workings of cell phone companies and users. Again in this situation, most users wish to be connected with a specific group of other users. In an article on an online website Sonamine, they discuss the terms in which a social network predicts “churn” in mobile telecommunications. http://www.sonamine.com/home/index.php?option=com_content&view=article&id=13%3Awhitepaper-1&catid=17%3Awhitepapers-category&Itemid=29

Two-Sided Platforms

Once you are able to comprehend the basic aspects of network structures and their abstract forms within an information network, you must realize that networks continue to evolve and branch off into other forms. An information network can be two-sided, in which the economic networks have two distinct user groups that will provide each other with network benefits. Another way of thinking of two-sided platforms are that they "leave control entirely to sellers and simply determine buyer and seller affiliation with a common marketplace". A good example of a two-sided network is eBay. In this online article, Hagiu goes into more detailed examples of two-sided platforms. http://www.hbs.edu/research/pdf/07-093.pdf. There can also be one-sided or three-sided networks. A one-sided network only connects one type of user. For example Pokemon cards are a one-sided network because they either connect producers or players. An example of a three-sided network is YouTube which contains viewers, video uploaders and advertisers. In this example, viewers benefit from more videos, and video uploaders and advertisers benefit from more viewers.

Analyzing Networks

Networks can be analyzed in two different ways, the socioeconomic perspective and the complex network perspective. The complex network perspective looks at larger-scale networks. According to one source, "these models supplement classical economic models to identify the systematic implications of certain network-formation rules on the emerging link structure and of that link structure as a constraint on the options for agents." This perspective is creating a new model, which takes the link structure into account instead of abstracting the network structure. The socioeconomic perspective acts in a similar away, however it "emphasizes understanding of how the strategic behavior of the interacting agents is influenced by -and reciprocally shape- relatively simple changes in network architectures." In order to analyze networks using these perspectives game theory must be used to study how these links are strategically made and the decision behind making certain links.

Analyzing different network structures is important in understanding economic activity; "the study of how network structure influences (and is influenced by) economic activity is becoming increasingly important because it is clear that many classical models that abstract away from patterns of interaction leave certain phenomena unexplained." . With many networks in today's society especially social networks the connections should be taken into consideration. For example, "the fact that information about jobs is largely disseminated through social networks has significant implications for patterns of wages, unemployment and education." This example demonstrates the importance of knowing who is connected to whom in networks. If networks are abstracted we will be losing valuable information.