ABSTRACT

In this paper we review diffusion of innovations in the Information Communications Technology (ICT) markets. We discuss the relevance of network effects in an interconnected economy and look at the self-reinforcing dynamics of increasing returns in the form of network externalities, critical mass and market tipping. Critical mass triggers exponential market growth at a particular stage in the life-cycle of a network product. Market tipping is as a key consequence of increasing returns whereby successful standards may benefit from a ‘winner takes all’ scenario.

network effects, network externalities, critical mass, market tipping, increasing returns, switching costs, installed base, lock in, standards war, open standards, bandwagon effects, information communications technology (ICT).

 
~~~

Information Communication Technologies (ICT) are settling into a new industrial landscape brought about by digitisation and convergence of products and networks. Convergence has been enabled by the speed of delivery of the internet, voice and data, and it has decreased the cost of storage of information and of transmission. Digital technology permits the delivery of a wide range of products in an innovative, intuitive and customised fashion over a combined electronic communication platform. Integrated networks provide ICT companies with an opportunity to invest and launch flexible and timely products for considerably lower costs.

Information technologies have become institutionalised across the world and are now having a revolutionary effect on corporate strategy. The new environment of convergence and digitisation puts pressure on ICT sectors to maximise economies of scale and scope, to enhance competition at the retail level and to deliver value-to-customers efficiently. Executives are rethinking the strategic fundamentals of business practices, not just in technology and communications industries, but also across the entire spectrum of industries.

Many of the component parts of this new ICT industry, such as telecommunications, the internet, computing and software, are shaping significant parts of the corporate environment into a new ‘network economy’. The essence of networks is the existence of multiple nodes, the interconnectivity between them, and the co-operative (as opposed to competitive) behaviour of the nodes. As we shall see, networks have increasing returns to scale characteristics. The dynamics of corporations and the new information economy will increasingly reflect these increasing returns to scale and, therefore, understanding how such networks work is the key to developing a new set of strategies in this new, information-based corporate landscape.........