The Determinants of Network Growth: The Case of Commercial Online Information Networks

With the advent of modern telecommunications capabilities, networks are rapidly becoming a competitive necessity in a wide variety of industries. The literature on networks suggests that networks have characteristics (e.g., network externalities) not shared by many other products or services, and thus traditional explanations of product growth or diffusion may not apply. Because there have been few empirical studies on networks, little is known about how networks grow and compete in the marketplace and the impact of network externalities. Using commercial online information networks as a context, this research examines the determinants of network growth. We find that make effect, usability, and compatibility with the dominant technological architecture are important variables influencing network growth. The results are also weakly supportive of the network externalities hypothesis, i.e., the online services industry exhibits some extent of network externalities.