Network externalities are the benefits that one user of a given commodity gains, when the other users of the same commodity change. In the e-book reader market, one of the greatest sources of network externalities is personal computers. E-book reader market does not involve physical exchange of goods and services. Consumers in this market access and use the products online. Thus, a personal computer acts as a great source of network externalities where the e-book publishers use computers as their distribution channel. Likewise, e-book readers are able to access and use the books through a computer. In the e-book reader market, the more people own personal computers, the more valuable a personal computer becomes to each owner as well as e-book marketers.
Another source of network externalities in e-book reader market is the internet. Without access to the internet, an e-book reader cannot be able to use the services of the e-book reader market. Similarly, e-book publishers and marketers such as Amazon and Sony cannot offer their services without the internet. The internet allows e-book readers to access books from various e-book publishers from their personal computers. For this reason, as many people gain access to the internet, the more valuable the internet becomes to the e-book readers, as well as to the e-book publishers and marketers. Availability of internet search engines such as Google and Yahoo, among others, is also a source of network externality to e-book reader market. These search engines allow e-book publishers and marketers to publish their books online. In return, e-book readers use these search engines to search for various e-books published on the internet by various e-book publishers. In fact, Google search engine is becoming more valuable to e-book readers since they can always ‘Google’ and find any e-book at any given time. Therefore, the more the e-book readers gain access to Google, the more Google becomes valuable to e-book publishers and marketers.
Based on the current market trends in the e-book readers market, it is likely that this market will become a ‘winner-take-all’ market. A winner-take-all market is a kind of a market where the best performers (usually few in number), capture the largest share of the market, leaving a very small share to the remaining competitors. In a winner-take-all market, market players with the largest market share take the largest share of rewards in the market. The e-book readers market is likely to become a ‘winner-take-all’ market because of the increased use of technology in this market. With the current rate of technological advancements, e-book reader market players will have to adopt strategies for keeping pace with the rapidly changing technology. This is because the market of their services is highly affected by technological changes. With the increased use of advance technological devices such as smartphone and tablets, e-book marketers will have to use a technology, which will enable their books to be accessible from multiple technological devices apart from personal computers. It is clear that only those firms that will be able to keep pace with the rapidly changing technology will be able to achieve the largest rewards in this market, therefore making it a winner-take-all market.
Amazon has been able to gain a lead over Sony due to its substantial efforts in internet advertising. Over the last one decade, Amazon has been publishing many adverts on the internet. Thus gaining recognition among the e-book readers as well as attracting potential consumers in the market. In addition, the use of Google search engines has enabled Amazon to gain a lead position over Sony. Use of search optimization tools increases a firm/product’s probability of being selected by potential customers. Furthermore, Amazon has been utilizing its website to make numerous offers to the e-book readers. In my opinion, Sony should increase its advertisement campaign. This will increase its popularity among the e-book readers. Besides, Sony should utilize search optimization tools, in order to increase its number of displays on the internet to the e-book readers.