Article 1 – steiner et al. (2016): Platform
adoption in system markets: the role of
preference heterogeneity.
1. Goal of study:
To understand how consumers decide which video game console to adopt
by examining two elements that previous literature has largely
overlooked:
- Preference heterogeneity (do different types of consumers
(causal, social,habitual, hardcore, gamers) value the drivers of
network effects differently?
- Consumer expectations (do consumers’ expectations about
future network effects (future installed base, future software
variety/quality, future oportunities to play with outhers) actually
influence their adoption intention)
In other words, they want to find out how direct network effects (ability to
play with/communicate with others) and how indirect effects (amount and
quality of available games) influence console adoption, and whether these
effects differ across cosnumer segments.
2. Key concepts of the article
Platform-based systems: markets where value comes from the
interaction between a platform (hardwarae) and its compatible elements
(software).
Console without games has no value.
Network effects: this is the theoretical lens of the study! There are two
types of network effects:
1. Direct network effects: value increases when more people use
the same platform because you can interact or play with them.
2. Indirect network effects: a larger installed base attracts moer
and better complementary goods, which increases platform value.
Installed base: total number of current adopters. This drives both
network effects: more users means more interaction possibilities (direct)
and more game development (indirect).
Preference heterogeneity: consumers do not value network effects in
the same way. The study identifies four segments: causal, social, habitual,
and hardcore gamers, each with distinct adoption drivers.
3. Studies & interpretation of results
3.1. Study 1: heterogenous perceptions of network variables
,What was examined: study 1 investigated how different consumers value
the drivers of platform adoption by examining heterogneity in
preferences. the authors used a choice-based conjoint analysis
experiment with over 1,000 respondents. Participants repeatedly chose
between hypothetical game consoles that differed on the key network-
effect attributes:
Software variety (indirect)
Software quality (indirect)
The availability of favorite title (indirect)
Local installed base (direct)
Software price (direct)
Hardware price (direct)
Outcome study 1:
1) Four distinct consumer segments, each valuing network-effect drivers
differently;
1. Causal gamers: low involvement, no strong preference for any
single attribute
2. Social gamers: strongly influenced by direct network effects (local
installed base; friends who play)
3. Habitual gamers: adoption is dominated by availability of
favourite title
4. Hardcore gamers: overwhelmingly driven by software quality
2) Software quality is a key driver in most segments:For three out of four
segments, and for hardcore it is by far the most dominant adoption
factor.
3) Direct network effects matter only for social gamers
4) Favorite titles matter mainly for habitual gamers
5) Prices matter more for causal and social gamers: These groups are
more price sensitive.
3.2. Study 2: a model of platform adoption with direct and
indirect network effects
What was examined: how consumers’ expectatons about future network
effects influence their intention to adopt a new game console, and
whether this differs across the four segments identified in study 1.
Key outcomes:
1. Perceived value system is the strongest driver of adoption
across all segments; consumers rely more on what they see now
than what they expect for the future!
, 2. Expectations matter less than theory suggests, future network
effects (expected installed base, expected game assortment,
expected social interaction) have only moderate or limited influence
on adoption.
3. Segment specific impacts: expectations function differently
depending on the consumer segments (mediation analysis):
a. Direct network effects (future interaction possibility) are only
significant for social gamers
b. Indirect network effects (future software quality/availability)
matter most for hardcore gamers, followed by habitual
gamers.
4. Expected installed base is imprtant driver in some
segments; for hardcore gamers and habitual gamers this has a
emdium effect.
4. Manegerial implications
1. “one-size-fits-all” launch strategies do not work: market consists of
four distinct segments, and these should get segment specific
strategies.
a. E.g., Direct network effects matter only for social gamers,
target them with (expected) social features
b. E.g., hardcore gamers/habitual focus on communicating
quality evolution (pre-announcing future superstar titles)
2. High quality sofware must be prioritized, especially at launch; this is
the dominant driver for most segments.
5. Guiding questions
Guiding questions:
1. In which way does the article extend our understanding of
network effects theory? In other words, what is new about
what this article explores that we did not know before?
a) It jointly examines direct and indirect network effects in system
markets.
The article extends network theory by showing that direct and
indirect network effects develop and influence adoption at the same
time.
b) Not all network effects are equally important for all consumers:
Different segments prioritize different network-effect drivers.
c) Incorporating the importance of expectations of future network
effects
adoption in system markets: the role of
preference heterogeneity.
1. Goal of study:
To understand how consumers decide which video game console to adopt
by examining two elements that previous literature has largely
overlooked:
- Preference heterogeneity (do different types of consumers
(causal, social,habitual, hardcore, gamers) value the drivers of
network effects differently?
- Consumer expectations (do consumers’ expectations about
future network effects (future installed base, future software
variety/quality, future oportunities to play with outhers) actually
influence their adoption intention)
In other words, they want to find out how direct network effects (ability to
play with/communicate with others) and how indirect effects (amount and
quality of available games) influence console adoption, and whether these
effects differ across cosnumer segments.
2. Key concepts of the article
Platform-based systems: markets where value comes from the
interaction between a platform (hardwarae) and its compatible elements
(software).
Console without games has no value.
Network effects: this is the theoretical lens of the study! There are two
types of network effects:
1. Direct network effects: value increases when more people use
the same platform because you can interact or play with them.
2. Indirect network effects: a larger installed base attracts moer
and better complementary goods, which increases platform value.
Installed base: total number of current adopters. This drives both
network effects: more users means more interaction possibilities (direct)
and more game development (indirect).
Preference heterogeneity: consumers do not value network effects in
the same way. The study identifies four segments: causal, social, habitual,
and hardcore gamers, each with distinct adoption drivers.
3. Studies & interpretation of results
3.1. Study 1: heterogenous perceptions of network variables
,What was examined: study 1 investigated how different consumers value
the drivers of platform adoption by examining heterogneity in
preferences. the authors used a choice-based conjoint analysis
experiment with over 1,000 respondents. Participants repeatedly chose
between hypothetical game consoles that differed on the key network-
effect attributes:
Software variety (indirect)
Software quality (indirect)
The availability of favorite title (indirect)
Local installed base (direct)
Software price (direct)
Hardware price (direct)
Outcome study 1:
1) Four distinct consumer segments, each valuing network-effect drivers
differently;
1. Causal gamers: low involvement, no strong preference for any
single attribute
2. Social gamers: strongly influenced by direct network effects (local
installed base; friends who play)
3. Habitual gamers: adoption is dominated by availability of
favourite title
4. Hardcore gamers: overwhelmingly driven by software quality
2) Software quality is a key driver in most segments:For three out of four
segments, and for hardcore it is by far the most dominant adoption
factor.
3) Direct network effects matter only for social gamers
4) Favorite titles matter mainly for habitual gamers
5) Prices matter more for causal and social gamers: These groups are
more price sensitive.
3.2. Study 2: a model of platform adoption with direct and
indirect network effects
What was examined: how consumers’ expectatons about future network
effects influence their intention to adopt a new game console, and
whether this differs across the four segments identified in study 1.
Key outcomes:
1. Perceived value system is the strongest driver of adoption
across all segments; consumers rely more on what they see now
than what they expect for the future!
, 2. Expectations matter less than theory suggests, future network
effects (expected installed base, expected game assortment,
expected social interaction) have only moderate or limited influence
on adoption.
3. Segment specific impacts: expectations function differently
depending on the consumer segments (mediation analysis):
a. Direct network effects (future interaction possibility) are only
significant for social gamers
b. Indirect network effects (future software quality/availability)
matter most for hardcore gamers, followed by habitual
gamers.
4. Expected installed base is imprtant driver in some
segments; for hardcore gamers and habitual gamers this has a
emdium effect.
4. Manegerial implications
1. “one-size-fits-all” launch strategies do not work: market consists of
four distinct segments, and these should get segment specific
strategies.
a. E.g., Direct network effects matter only for social gamers,
target them with (expected) social features
b. E.g., hardcore gamers/habitual focus on communicating
quality evolution (pre-announcing future superstar titles)
2. High quality sofware must be prioritized, especially at launch; this is
the dominant driver for most segments.
5. Guiding questions
Guiding questions:
1. In which way does the article extend our understanding of
network effects theory? In other words, what is new about
what this article explores that we did not know before?
a) It jointly examines direct and indirect network effects in system
markets.
The article extends network theory by showing that direct and
indirect network effects develop and influence adoption at the same
time.
b) Not all network effects are equally important for all consumers:
Different segments prioritize different network-effect drivers.
c) Incorporating the importance of expectations of future network
effects
