OIM 210 EXAM 3 CH. 8,9,10,11,12 QUESTIONS &
ANSWERS
8.1 Network effects are sometimes called _____.
a. Metcalfe's Law
b. the Osborne Effect
c. Moore's Law
d. network internalities
e. leverage effects - Answer -a. Metcalfe's Law
Network effects are also known as Metcalfe's law, or network externalities, and this
concept has been leveraged by many technology firms to build massive user bases.
8.2 Which of the following summarizes network effects?
a. Profit = sales x profit margin
b. More users = more value
c. Revenue = number of products sold x price
d. Lifetime value of a customer = Volume of each purchase made by the customer
e. Value = number of consumers x profits - Answer -b. More users = more value
When network effects are present, the value of a product or service increases as the
number of users grows. Simply, more users = more value.
8.3 In the context of network effects, the term "network" refers to:
a. the physical wires or wireless systems that connect pieces of electronics used by
network users.
b. a communication system consisting of a group of broadcast stations.
c. a system of intersecting lines or channels.
d. a series of points or nodes interconnected by communication paths.
e. a common user base, utilized to communicate and share with one another. - Answer
-e. a common user base, utilized to communicate and share with one another
A network doesn't refer to the physical wires or wireless systems that connect pieces of
electronics. It just refers to a common user base that is able to communicate and share
with one another.
8.4 The three sources of value for network effects include __________, staying power,
and complementary benefits.
a. exchange
,b. scale
c. supply chains
d. scope
e. profitability - Answer -a. exchange
The value derived from network effects comes from three sources: exchange, staying
power, and complementary benefits.
8.5 _____ refers to the long-term viability of a product or service.
a. Network internality
b. Complementary benefit
c. Exchange
d. Staying power
e. Lock-in - Answer -d. Staying power
Staying power, along with complementary benefits and exchange, gives value to
network effects. It refers to the long-term viability of a product or service.
8.6 Staying power is important in technology industries because technology products
such as office suite software, smartphone, laptops, and servers are so pricey.
a. true
b. false - Answer -b. false
Staying power is important for consumers of technology products because investment
over time usually greatly exceeds the initial price paid for a product or service. A user
invests in learning how to use a system, buying and installing software, entering
preferences or other data, creating files-all of which mean that if a product isn't
supported anymore, much of this investment is lost
8.7. What concept related to staying power is also known by the phrases "being sticky,"
"creating friction," and "lock-in"?
a. Complementary benefits
b. Switching costs
c. Platforms
d. Exchange
e. Network internality - Answer -b. switching costs
Switching costs also go by other names. You might hear the business press refer to
products as being "sticky" or creating "friction." Others may refer to the concept of "lock-
in." The concept of staying power is directly related to switching costs.
8.8 Which of the following is an economic measure of the full cost of owning a product?
,a. Product lifecycle
b. List price
c. Total cost of ownership
d. Lifetime value of a customer
e. Fixed cost - Answer -c. total cost of ownership
Total cost of ownership is an economic measure of the full cost of owning a product. It
includes direct costs such as purchase price, plus indirect costs such as training,
support, and maintenance.
8.9. Which of the following would not be considered as contributing to the
'complementary benefits' value of network effects
a. books and magazines about the product
b. qualified labor skilled in using the product
c. third-party apps that work with the product
d. hardware that can communicate with and be controlled by the product
e. none of the above - Answer -e. none of the above
Complementary benefits are those products or services that add additional value to the
network. These products might include "how-to" books, software, and feature add-ons,
even labor. Hardware products that can plug into a 'platform', such as speakers or even
automobile integration (Apple CarPlay) are complementary benefits that enhance the
value of the primary product or service offer.
8.10. Products and services that can be considered to be a 'platform' allow for the
development and integration of software products and other complementary goods are
known.
a. true
b. false - Answer -a. true
Products and services that encourage others to offer complementary goods are
sometimes called platforms. Allowing other firms to contribute to your platform can be a
brilliant strategy because those firms will spend their time and money to enhance your
offerings.
8.11. One way firms seek to strengthen their platforms and encourage third parties to
develop complementary goods is by:
a. creating a walled garden
b. offering APIs
c. vertical integration
d. inimitable value chains - Answer -b. offering APIs
Products and services that encourage others to offer complementary goods are
sometimes called platforms. Many firms do this by providing APIs, or Application
, Programming Interfaces, that allow third parties to integrate with their products and
services.
8.12. Benefits derived by interaction among members of a single class of participants
are called _____ exchange benefits.
a. dedicated
b. same-side
c. concentrated
d. renewed
e. cross-side - Answer -b. same-side
Benefits derived by interaction among members of a single class of participants are
called same-side exchange benefits.
8.13. An increase in the number of subscribers of yellow pages creates a rise in the
number of advertisers. This is an example of _____ exchange benefits.
a. same-sided
b. straddled
c. rectilinear
d. cross-side
e. interlinked - Answer -d. cross-side
When an increase in the number of users on one side of the market (say video game
console owners) creates a rise in the other side (software developers), that's called a
cross-side exchange benefit.
8.14 Why is eBay an example of a two-sided network?
a. buyers attract sellers and vice versa
b. listings attract advertisers and vice versa
c. products attract sellers and vice versa
d. greenfield efforts attract localization efforts and vice versa
e. None of the above - eBay is not a two-sided network - Answer -a. buyers attract
sellers and vice versa
two-sided markets are network markets comprised of two distinct categories of
participant, both of which that are needed to deliver value for the network to work. At
eBay for transactions to work the market needs both buyers and sellers, and each
category attracts the other.
8.15. Network markets comprised of two distinct categories of participants, both of
which are needed to deliver value for the network to work, are called _____.
a. twin markets
ANSWERS
8.1 Network effects are sometimes called _____.
a. Metcalfe's Law
b. the Osborne Effect
c. Moore's Law
d. network internalities
e. leverage effects - Answer -a. Metcalfe's Law
Network effects are also known as Metcalfe's law, or network externalities, and this
concept has been leveraged by many technology firms to build massive user bases.
8.2 Which of the following summarizes network effects?
a. Profit = sales x profit margin
b. More users = more value
c. Revenue = number of products sold x price
d. Lifetime value of a customer = Volume of each purchase made by the customer
e. Value = number of consumers x profits - Answer -b. More users = more value
When network effects are present, the value of a product or service increases as the
number of users grows. Simply, more users = more value.
8.3 In the context of network effects, the term "network" refers to:
a. the physical wires or wireless systems that connect pieces of electronics used by
network users.
b. a communication system consisting of a group of broadcast stations.
c. a system of intersecting lines or channels.
d. a series of points or nodes interconnected by communication paths.
e. a common user base, utilized to communicate and share with one another. - Answer
-e. a common user base, utilized to communicate and share with one another
A network doesn't refer to the physical wires or wireless systems that connect pieces of
electronics. It just refers to a common user base that is able to communicate and share
with one another.
8.4 The three sources of value for network effects include __________, staying power,
and complementary benefits.
a. exchange
,b. scale
c. supply chains
d. scope
e. profitability - Answer -a. exchange
The value derived from network effects comes from three sources: exchange, staying
power, and complementary benefits.
8.5 _____ refers to the long-term viability of a product or service.
a. Network internality
b. Complementary benefit
c. Exchange
d. Staying power
e. Lock-in - Answer -d. Staying power
Staying power, along with complementary benefits and exchange, gives value to
network effects. It refers to the long-term viability of a product or service.
8.6 Staying power is important in technology industries because technology products
such as office suite software, smartphone, laptops, and servers are so pricey.
a. true
b. false - Answer -b. false
Staying power is important for consumers of technology products because investment
over time usually greatly exceeds the initial price paid for a product or service. A user
invests in learning how to use a system, buying and installing software, entering
preferences or other data, creating files-all of which mean that if a product isn't
supported anymore, much of this investment is lost
8.7. What concept related to staying power is also known by the phrases "being sticky,"
"creating friction," and "lock-in"?
a. Complementary benefits
b. Switching costs
c. Platforms
d. Exchange
e. Network internality - Answer -b. switching costs
Switching costs also go by other names. You might hear the business press refer to
products as being "sticky" or creating "friction." Others may refer to the concept of "lock-
in." The concept of staying power is directly related to switching costs.
8.8 Which of the following is an economic measure of the full cost of owning a product?
,a. Product lifecycle
b. List price
c. Total cost of ownership
d. Lifetime value of a customer
e. Fixed cost - Answer -c. total cost of ownership
Total cost of ownership is an economic measure of the full cost of owning a product. It
includes direct costs such as purchase price, plus indirect costs such as training,
support, and maintenance.
8.9. Which of the following would not be considered as contributing to the
'complementary benefits' value of network effects
a. books and magazines about the product
b. qualified labor skilled in using the product
c. third-party apps that work with the product
d. hardware that can communicate with and be controlled by the product
e. none of the above - Answer -e. none of the above
Complementary benefits are those products or services that add additional value to the
network. These products might include "how-to" books, software, and feature add-ons,
even labor. Hardware products that can plug into a 'platform', such as speakers or even
automobile integration (Apple CarPlay) are complementary benefits that enhance the
value of the primary product or service offer.
8.10. Products and services that can be considered to be a 'platform' allow for the
development and integration of software products and other complementary goods are
known.
a. true
b. false - Answer -a. true
Products and services that encourage others to offer complementary goods are
sometimes called platforms. Allowing other firms to contribute to your platform can be a
brilliant strategy because those firms will spend their time and money to enhance your
offerings.
8.11. One way firms seek to strengthen their platforms and encourage third parties to
develop complementary goods is by:
a. creating a walled garden
b. offering APIs
c. vertical integration
d. inimitable value chains - Answer -b. offering APIs
Products and services that encourage others to offer complementary goods are
sometimes called platforms. Many firms do this by providing APIs, or Application
, Programming Interfaces, that allow third parties to integrate with their products and
services.
8.12. Benefits derived by interaction among members of a single class of participants
are called _____ exchange benefits.
a. dedicated
b. same-side
c. concentrated
d. renewed
e. cross-side - Answer -b. same-side
Benefits derived by interaction among members of a single class of participants are
called same-side exchange benefits.
8.13. An increase in the number of subscribers of yellow pages creates a rise in the
number of advertisers. This is an example of _____ exchange benefits.
a. same-sided
b. straddled
c. rectilinear
d. cross-side
e. interlinked - Answer -d. cross-side
When an increase in the number of users on one side of the market (say video game
console owners) creates a rise in the other side (software developers), that's called a
cross-side exchange benefit.
8.14 Why is eBay an example of a two-sided network?
a. buyers attract sellers and vice versa
b. listings attract advertisers and vice versa
c. products attract sellers and vice versa
d. greenfield efforts attract localization efforts and vice versa
e. None of the above - eBay is not a two-sided network - Answer -a. buyers attract
sellers and vice versa
two-sided markets are network markets comprised of two distinct categories of
participant, both of which that are needed to deliver value for the network to work. At
eBay for transactions to work the market needs both buyers and sellers, and each
category attracts the other.
8.15. Network markets comprised of two distinct categories of participants, both of
which are needed to deliver value for the network to work, are called _____.
a. twin markets
