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Estimating the Final Size of an Online User Base

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  • Steven Lim

    ()
    (University of Waikato)

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    Abstract

    The theoretical insights from the increasing returns literature, plus the interaction between consumers facilitated by networked technologies, have led to a synthesis in which virtual communities become uniquely valuable to an online firm. Strategy in social media markets, in particular, becomes one of promoting information sharing and connectivity within networks of user communities, deepening the relationship between the user base and sellers, and paving the way for a revenue payoff. When network externalities also suggest the possibility of barriers to entry and lock-in operating on the demand side, the importance of a large user base correspondingly increases. From a finance perspective the relevant question then is: how large will a firm’s user base eventually become? Cauwels and Sornette (2011) answer this question by positing an S-shaped model of user growth. We extend their model by introducing competition from another online firm. With this extension, S-shaped growth is altered, potentially invalidating Cauwels and Sornette’s (2011) results.

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    File URL: ftp://mngt.waikato.ac.nz/RePEc/wai/econwp/1215.pdf
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    Bibliographic Info

    Paper provided by University of Waikato, Department of Economics in its series Working Papers in Economics with number 12/15.

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    Length: 15 pages
    Date of creation: 11 Dec 2012
    Date of revision:
    Handle: RePEc:wai:econwp:12/15

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    Keywords: user base growth; Facebook valuation; S-curves;

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    1. Rabik Ar Chatterjee & Jehoshua Eliashberg, 1990. "The Innovation Diffusion Process in a Heterogeneous Population: A Micromodeling Approach," Management Science, INFORMS, vol. 36(9), pages 1057-1079, September.
    2. Rui Baptista, 1999. "The Diffusion of Process Innovations: A Selective Review," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 6(1), pages 107-129.
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