Ad-sponsored Business Models and Compatibility Incentives of Social Networks

Feng Zhu ()
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Feng Zhu: Marshall School of Business, University of Southern California, http://marshall.usc.edu

No 08-20, Working Papers from NET Institute

Abstract: This paper examines social networks' incentives to establish compatibility under fee and ad-sponsored business models. I analyze the competition between two social networks and show that compatibility is only possible when the two networks are ad-sponsored. I also find that even when both networks are ad-sponsored, a network with a significant installed-base advantage may choose not to be compatible when the cost from sharing the market outweighs the benefit from additional ad profits. Finally, compatibility also requires a significant number of single-homing users. The results are consistent with empirical observations of social networks and suggest that increased adoption of ad-sponsored business models may lead to many de-facto standards in high-technology industries.

Keywords: Ad-sponsored; Compatibility; Social networks; Business models (search for similar items in EconPapers)
JEL-codes: L10 L15 M21 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2008-09, Revised 2008-09
New Economics Papers: this item is included in nep-ipr, nep-pr~, nep-net and nep-soc
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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