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Interoperability and the Network effect
This post will introduce a simple yet important concept in understanding the power of the Internet and the World Wide Web.
Reaching critical mass is an important reason alone why an eBusiness is able to take off. This is certainly the case with the Internet where a number of technologies and a number of users have converged to make it more practical and vastly more useful. We can understand this more fully by exploring the related concepts of interoperability and the Network effect. In the process we can also put in context new terms like proprietary and open, integration, compatiblity, and platform.
An introduction to Interoperability
Interoperability is the ability of systems running in different operating environments to communicate and work effectively. To keep it simple we can say two entities speaking the same language are interoperable. Two entities that, for any reason, do not....are not. Let's use video games as an example. 
When I was a kid Sony Play station didn't yet exist. Nintendo and Sega were the two main game consoles available. One difficulty in choosing which game console to buy was considering that the games being offered by each company or their partners were not interoperable with each other. Sega games wouldn't work on Nintendo systems and Nintendo games wouldn't work on Sega systems. It would have been much better if all games worked on all systems but the companies making them did not share their technology openly and their systems were complex so they each developed different proprietary systems independently. This situation might sound familiar. The world of home electronics is full of stories about interoperability difficulties: Betamax tapes wouldn't run in VHS VCRs and vice versa; your Sony memory card won't work in your Canon digital camera, and so on. And the world of computers has, traditionally been full of the same stories as well. To this day a software program, typically, is designed to run on one of the Windows, Linux, or Apple platfoms.
Interoperability problems limit the value of a product or service because they limit the number of compatible applications and compatible users. A fax machine made with proprietary technology that works with no other fax machine (based on shared or open standards) is virtually useless. Ease of interoperability, or integration, on the other hand enhances the value of a product or service because it increases the number of compatible applications and users.
Why do interoperability issues emerge?
Interoperability problems emerge from a number of different areas and at various different levels. Here are a few examples.
- There can be technical difficulties in merging two technologies. A typewriter doesn't have the technical capabilities to communicate on a digital network, for example. New technologies which offer enhanced capability may render other technologies incompatible.
- There can be data inconsistencies stemming from all sorts of causes.
- There can be language and cultural differences, for instance, keeping two systems from working together efficiently.
- And there can be sheer economic and competitive reasons for interoperability issues. Companies, like Microsoft, often make their systems closed and proprietary so that software built for computers running their software don't work on others.
A major reason why the Internet and World Wide Web are so powerful lies in their ability to enhance interoperability. They are unifying! They make other applications more powerful by their ability to communicate in a common format. Imagine a world where every electronic device, when plugged in, instantly recognized and collaborated with every other device. It's coming!
How can we overcome interoperability problems?
The Network Effect
When a product or service offers more uses and attracts more users a Network Effect might result. A network effect occurs when the growing value of a product or service makes it even more attractive to new users. And as each new member joins the inherent value of the product or service grows for each existing member. Think of it as a snow-ball rolling down a hill. Excellence in interoperability is usually necessary to allow for new uses and new users of a product or service. Even more than product quality, it is often what leads to a network effect. In the case of VCRs for example, Sony's Betamax standard was hands down the better technology for recording video on tape. But Panasonic, and their inferior quality VHS standard, was more effective at winning over the makers of videos (movie distributors and so on). What mattered to consumers was the number and range of movie titles they could rent and use on their machine and so the VHS standard took off. As more VHS-based VCRs sold more movie distributors opted for VHS formatted video production. A network effect kicked in and the value of that standard accelerated (leaving Betamax in the dust).
Posted by Mark Hemphill on September 23, 2007 in Module III - Software | Permalink
Comments
I think that this networking effect may take place as Mark noted but this may take a while. Just as the VHS won over the Betamax I think that technologies will continue to advance in these cycles. We will never reach a time where inventions will cease and everything will become compatible but this networking age is upon.
Posted by: Chad MacLean | Sep 24, 2007 6:58:25 PM
us.
Posted by: Chad MacLean | Sep 24, 2007 6:59:38 PM
If the network effect does lead to virtually every electronic device being linked or interoperable with each other, won't that completely destroy the competition between companies producing similar, but somehow unique products?
A video gaming system that can play every video game on earth, for example, in a pretty cool idea for us, but an unpleasant thought for these competing companies whose games are their main attraction to consumers. This could either drive other companies out of business and create monopolies (and the prices could skyrocket) or, these companies could continue to produce the exact same products, and have their prices forced to go down by the consumers.
That being said, you can't deny that the networking effect is happening all around us, and it will be cool when most technologies that we're using are interoperable with each other.
Posted by: Jeff MacKenzie | Sep 24, 2007 9:30:39 PM
Complete and total interoperability is a pretty big concept to grasp. It is pretty easy to see how we are going down this path with recent inovations such as Bluetooth technology. I will also have to agree with Jeff's point though, that complete and total interoperability would likely have to involve an agreement between competitive companies. However, I'm not so sure this would be a good thing. Competition is one of the greatest driving factors in technological innovation, and monopolies tend to be lazy.
Thanks for the nostalgic snapshot of the old Nintendo Entertainment System a Sega Master System though, haha, it brought back some good memories.
Posted by: Craig Gallant | Sep 24, 2007 10:10:17 PM
It is nice to imagine all technologies being completely interoperable with each other. That would be great for the consumers but how would that effect the companies selling the products? What would win the consumer over from one product to another? Interesting to think about. Those were some good illustrations since we all remember the days of Sega and Nintendo. Some companies are creating products more compatible with others to maximize there sales. However, companies have to be careful to set themselves apart so it makes it difficult to become totally interoperable. I think it will be neat to see some more technologies follow the 'Network effect'.
Posted by: Krista Mackenzie | Sep 25, 2007 12:48:19 AM
I would agree that with every new innovation comes NEW complexities which set it apart from others, and may in fact create new interoperability problems.
However, the essence of the network effect is that a network is more valuable as more members, and as more functions are added. So competition is increasingly based on being "compatible" with the larger network (so you can take advantage of all that value already vested). Two companies can compete fiercely even though they comply with the same standards. The Internet and the WWW are full of good examples there.
Some people fear that an exclusive Internet 2.0 will come along that is controlled by the big media conglomerates for instance who already control so much content (film, tv, print, news, music, etc...). Though this could happen in theory....it is pretty interesting to note that it seems to be getting harder and harder all the time. Developments may be uneven but the Internet is becoming increasingly decentralised I would argue - all based on standards and protocols that uphold compatibility and accelerate the network effect.
Posted by: Mark | Sep 25, 2007 9:19:04 AM
It would seem that the network effect is only just picking up steam. My question is this: does the network effect happen on its own, or do individual users and companies create products, application, and services that drive the effect? For example, did social communities (Facebook for example) arise because everyone was in a network together and someone decided to harness the strength of the network in an application? Or did Mark Zuckerberg create an application, and the network grew from that application? Do the two work in unison?
Furthermore, is there a point where the network effect reverses, and the more additional participants, the less the total value of the network? Email was one of the first applications on the internet that had a huge network effect. Every extra person with an account, made the email system stronger. Has email come to a point where the additional users subtract value from the system? I would argue that emails’ usefulness has decreased on a yearly basis, because of the overwhelming proliferation of spam and viruses –likely correlated with the number of new email accounts. Is this just a growing pain, or has email reached its peak?
Posted by: Ben Howard | Sep 25, 2007 11:04:12 AM
To answer Ben's question regarding whether or not networking effects are created through the influence of individuals or through an idea of an individual, I would have to say that you could argue that there is an even mix of both. Ideas such as the Internet and the WWW weren't so much influenced through a fad or through the influence of individuals, but through the genious idea's of a a few guys. Although you could also argue that these ideas came through the influence of communities pushing technology in the right direction. Concerning social communities such as facebook and myspace, I think these came about through the great oppurtunity Mark Zuckerberg or Tom Anderson saw that was being influenced by individuals in other social communities. They saw a new fad people were getting into, and they took advantage of it.
Posted by: Jeff MacKenzie | Sep 25, 2007 11:51:05 AM
I agree with Jeff that there are numerous examples of the network effect happening in both ways described. It is interesting to look at the example of the Internet and how it grew through the recognition of its potential users that it was going to be a useful tool.....not because it was marketed with flashy ads or other manipulative moves by anyone. This was a natural progression of a superior technology being raised to the forefront.
On the other hand, we can consider the debates of "Beta vs VHS" or "Windows vs Mac", etc. In these examples, it was a single person or company who made some savy business moves to force their technology to the forefront, even though it was an inferior product.
I think that the network effect works when it is manifested in its natual progression, but it can have a negative effect in more commercial areas where individuals want to create an artificial uptake of their product.
Posted by: Cory | Sep 25, 2007 8:23:33 PM
Ben I think you have brought up some very interesting questions. I think you are right in the assumption that at some point the network effect must reverse. If everyone is trying to use the same technology at the same time this must change the outcome or effect the response time. And once a technology becomes so powerful, then there is the introduction of users that create viruses and spam that definetly decrease the power of the system.
Posted by: Devon Gillis | Sep 25, 2007 8:59:16 PM
As consumers what we want and look for in most products is how well they integrate with other products, we look for the product that we will be able to most fully utilize. The manufacturers of such products try their best to make their product integrate seamlessly with every other product out their as possible. They do this because technoloigcal Integration among products is what sells and to an extent its what will always sell.
The network effect is pushing technology to new limits, but what will happen when virtually every electronic becomes seamlessly integrated with every other. If this were the case it would seem that were heading towards a electronic monopolized world. I believe that the network effect will only bring integration to the point where sales start to suffer due to lack of diversity. Then the network effect will take on a new life, pushing technology further yet to create new and much more amazing things that will start this cycle over again. Im just ramblin on though so who knows.
Posted by: Craig Lambe | Sep 25, 2007 10:43:01 PM
Reading many of these posts they are quite insightful. I think that maybe one of the most tell tale signs of a changing world is what happened over the General Motors' (GM) strike in the US. GM at one time was the biggest most powerful company in the world. Approximately ten years ago there was a strike at GM that lasted quite somtime. GM could not afford a lasting strike at this time. GM's need to compete in this new age changed how this strike was handled on both sides of the bargaining table.
Posted by: Greg Arnold | Sep 26, 2007 3:09:12 PM
The network effect is very evident in the news right now. Without the the internet we wouldn't be getting the pictures out of the country formerly known as Berma. Their freedom fight is being broadcast to the world in a way that has never been seen before. This was not possible even five years ago. It will be intersting to see how technological advances will change the way that society deals with a situation like this and how the world will react.
Posted by: Greg Arnold | Sep 26, 2007 3:55:26 PM
As long as companies keep producing proprietary products, I don't believe we can ever fully overcome interoperability issues. There may be reasons for some "open" products to be produced like the Ipod which can be used on Microsoft computers and not just Apple computers. Most people obviously own Microsoft systems so allowing this interoperability has increased the value of the Ipod and in turn create a huge network effect. You don't hear anyone talk about MP3 players anymore, it is always the Ipod!
On the other hand, other products are still, and I think will be for awhile, proprietary. With competition as fierce as it exists today in the marketplace, why would any company want to produce an interoperable product that would open the doors for their competitors to levy themselves in the market? Depending on the product, it could cause a network effect. For this reason and the new technologies being developed for products as fast as they are, I don't see there being a way to overcome interoperability issues. Companies will not let it be possible for all products to be interoperable and the speed of the techology world is too fast.
Posted by: Jason Kelly | Sep 26, 2007 8:06:01 PM
Wow there are a lot of posts on this topic. Anyway, I just thought that class was really interesting. I didn't realize there had been a battle between VHS and Betamax. To be honest, I didn't know Betamax had ever existed. Anyway, I think that companies like Xbox 360 should be able to run games from other companies. Personally, I would buy one if it could play games from games from Nintendo. And hey, for all I know, Xbox 360 could have a Mario Brother's.
Posted by: Katelyn Murnaghan | Sep 27, 2007 10:04:28 AM
I think the time of closed systems and proprietary products will begin to very slowly diminish. A big reason for this is the newly empowered consumer. The internet has given the consumer the ability to pool suggestions and complaints with millions of others, to give this customer feedback new force. Ten years ago, when Sony used a proprietary hookup system on home theaters, you could write them a letter telling them how it drove you nutts. Today you can put your story on Digg, or make a web page devoted to your cause, or join a discussion group. Anyone else with this problem can easily find you, and join the bandwagon. These guys didn’t like the fact that Apple added software to the iPhone to make it unusable with other mobile phone carriers. Even though I don’t see Apple getting rid of this purposeful lack of interoperability, I am sure the fact that hundreds of thousands of people have seen this picture will make them consider different options during the next contract talks with AT&T.
Posted by: Ben Howard | Sep 27, 2007 7:44:08 PM
I see interoperability from a more competitive point of view than the others listed. The Nintendo / Sega example was perfect. I remember I always had a Nintendo so I could play Mario, a game which did not operate on a Sega. It continues today with gaming consoles, but I just play sports games like NHL, Madden and Fifa now so it doesn't affect me as much when it comes to video games.
Posted by: Colin Butler | Sep 30, 2007 8:26:28 PM
I agree with the post that talked about how savy marketing can boost one product over another even if the product is inferior. Then because of ecomnomies of scale the inferior product becomes the product of choice forcing others to make their products compatable with the infierior product.
So all you genuises out there inventing things, make sure you have some strong marketing behind your product to ensure it is the next VHS or Windows and that it doesn't go the route of the Betamax and others.
Posted by: Debbie Barry | Oct 1, 2007 11:54:12 AM
Complete interoperability... is that possible? Perhaps... but will we ever see a time where say one video game consol could play every video game on this earth... I don't think so. Companies are much to greedy for that to ever happen. Interoperability is a great thing for the consumer... but not so much for the company itself. Companies are always trying to gain a competitive edge.. and be at the top of the consumer food chain so more and more we are seeing technologies that can only be used by computers or other mediums produced by their company. In the same way that interoperability could be great for the consumer, it could also be disasterous. By having a company having a technology that would render the other companies technology useless, would eliminate competition and therefore that company would have free reign to price there system however they see fit. This could could cause prices to sky rocket.
Posted by: Ryan Keefe | Oct 14, 2007 12:35:47 AM
Technology grows in different stages. At the introduction of technology, it is relatively expensive and gets cheaper with time. Firms or businesses will want to cover the costs associated with research and development plus profit. With time technology spreads where other companies will produce the same techology increasing competition and thus lowering the prices. At this point, copmanies will team up and produce technology that is interoparable e.g in gaming industries. To me I think this is a continous cycle. I agree with Ryan that it is hard to tell with there will be complete interoparability. Profits first is the Motto.
Posted by: Wycliffe Ogucha | Oct 16, 2007 6:42:47 PM
I know that when Sony bought out movie distributers and such and hence had more business because they offered much more than Betamax they obviously won that war. But I feel like it's getting to a time when people get more annoyed than anything when companies try to do that and that's why you can buy generic brand camera memory chips to fit different cameras or buy Guitar Hero for Playstation 3 or XBox 360, for example. This companies are being smart by giving into what the customer wants-conveience and not being greedy with their technology.
Posted by: Lauren Tweel | Oct 18, 2007 12:22:41 AM
I agree with Lauren companies are getting smarter but they still have a long way to come like the examples give with camera's and game consoles. But fortunately all computers use the same technologies so it make playing games better because you can do what you want on the computer.
Posted by: Katelyn Tweedy | Oct 18, 2007 5:57:22 PM
Regarding to the gaming and video examples. I believe that it is important that the major companies differentiate their products and limit them only to being compatable with their own products. this makes a competitve market, and pushes the major companies to make better products
Posted by: Nick Drake | Nov 26, 2007 1:57:24 PM
Wow, that's an interesting take Nick! From a consumer point of view wouldn't you want to play your game/tape/cd/dvd/program or whatever on whatever device you want?
Posted by: Mark | Nov 26, 2007 2:58:08 PM
I would have to agree that Nick's view is interesting. If I was in the midst of producing a product I would want it to be as compatible as possible with as many devices as possible. This way you aren't limited to selling your invention to one specific set of users. But that is just my view.
Posted by: Frieda | Nov 26, 2007 9:24:50 PM
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