Estimating the Final Size of an Online User Base

Steven Lim ()
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Steven Lim: University of Waikato

Working Papers in Economics from University of Waikato

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.

Keywords: user base growth; Facebook valuation; S-curves (search for similar items in EconPapers)
JEL-codes: C15 D85 G17 (search for similar items in EconPapers)
Pages: 15 pages
Date: 2012-12-11
New Economics Papers: this item is included in nep-mkt and nep-net
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