Classroom Companion: Business

 
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Answers
1. AltaVista was inaugurated in December 1995, while Google appeared on the 
international market in 1999. AltaVista had an obvious first mover advantage 
over Google. Already in early 1996, 45% of the users preferred AltaVista for 
web search. In 2000, about 1 year after Google started operation, AltaVista 
had still 17% of the market, while Google had only 7%. Since then, the usage 
of AltaVista declined rapidly and soon more or less disappeared from the mar-
ket, while Google increased their grip on the market and soon became the lead-
ing search engine, currently, with a market share of more than 60%. The 
reasons were that Google offered a more efficient search algorithm (causing 
positive network effects changing the path of evolution in favor of Google) and 
that AltaVista was taken over by Yahoo! (external path-changing event where 
the brand name disappeared from the market).
2. Yes. The “likes” button is a positive feedback mechanism from the market 
where a positive response may increase the popularity of a Facebook page 
(positive network effect), while a negative response may reduce the popularity 
of the page (negative network effect). See 
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Chap. 
9
 for definitions of positive 
and negative network effects and positive and negative feedback.
3. Several factors causing agglomeration have been suggested:
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If there are several similar vendors selling similar products (e.g., cars, shoes), 
more customers are attracted to the area and hence increasing the sales for each 
vendor.
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It may be easier to attract workers with specialized skills to the region.
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It may stimulate cooperation reducing development costs and enhancing 
research.
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It is more likely that easily available support facilities will be established in the 
same area.
These factors may then generate positive network effects attracting new businesses to 
the same area. It has been claimed that Silicon Valley grew up in this way.