Scale Effects, Network Effects, and Investment Strategy
Posted: 27 Jan 2012
Date Written: May 13, 2011
This technical note discusses scale economies, and direct and indirect network effects in the context of building better business models. Some of the great business disasters of the dot.com bubble were companies that scaled their infrastructure without working through the scaling effects. This note also discusses multi-sided platforms, the skewing of business models reflecting a mispricing to get one side on board, and suggests the importance of testing in establishing viable business models.
Learning Objective: Theory supplement to cases like 610077 Pandora Radio.
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