Network Effects in Cell Phones

In class we have discussed network effects, basically meaning that people derive more value from certain products, such as technology and social networks, when more people are utilizing that product. A prime example of such a product that has been developing in recent history is the cell phone. The article “Watch The Incredible 70-Year Evolution Of The Cell Phone” shows how cell phones have changed over time. Originally, cell phone technology was not especially advanced and prices were prohibitively high.

Since not many people owned cell phones, buying them made little sense to individuals, especially as the price was so high that it often outweighed the benefit people received from the product, both inherently and from the number of users. However, improvements in cell phone technology led to new activities such as texting. This development led to an increased benefit in having a phone when many people did, since texting could only be completed using a cell phone. Prices lowered so that many people were now able to afford phones and considered the benefits to outweigh the cost. The fraction of people who owned cell phones moved past the tipping point, and suddenly cell phone growth spread rapidly through the population. Now, it is actually far more unusual to encounter someone without a cell phone than with one.


3 thoughts on “Network Effects in Cell Phones”

  1. That is a great point. We can see this even more by view how users are beginning to own multiple phones instead of one or none. I only see the trend increasing as we find more uses of this great technology.

  2. True indeed cell phone technology has tranformed over time causing it to be highly rare event for you to run into someone without a cell phone these days. That being so, one could maybe further this way of looking at the network effect of cell phone in spefic brand markets rather than just cell phones as a whole.

    According to the above post, “people derive more value from certain products…when more people are utilizing that product …and that phone development… led to lower prices making phones affordable, resulting in the fraction of people who owned cell phones moving past the tipping point”. Does this process continue/ trickle down? I’m not sure if I’m using the right terms. But I am thinking about now the Iphone, Blackberry, Samung Galaxy. These phones are as technological as you can get. Because of their ‘smart’ features (especially special features you can do only with people who have that same phone e.g. snapchat with fellow iphone users or BBM with fellow blackberry users) people buy them and value them more because others are using them. However, the prices of these phones have NOT decreased as they did when cell phones were first introduced and people moved past the tipping point. Is there another tipping point? or is the only way the price goes down is when a newer, more expensive version is released?



  3. It seems that the networks effects in the cell phone market has reached its maximum for call and texting, at least in developed nations. What’s interesting now is the applications available on smartphones which also are affected by network effects. Apps such as Instagram, Snapchat and Vine only exist on the smartphone platform, and have dramatic increases in membership every day and this will continue until smartphone growth reaches its plateau. Also affected by the growth in smartphone usage are networks that have desktop backgrounds, such as Facebook, Twitter and Reddit. These networks have marginal ability to increase their number of users, and experience huge growth in active use among users by having a well maintained, functional and user friendly mobile application. These desktop founded networks have had their share of growing pains in adapting to the mobile platform (looking at you Facebook), but have realized that the market is demanding their strategy to be “mobile-first”.

Comments are closed.