Classroom Companion: Business

 
Chapter 18 · Digital Market Modeling

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services seem to be able to put up enough capacity to avoid the saturation effects 
that moderate the evolution of the service.
We start with analyzing markets using the market diffusion equation developed 
by Frank Bass in 1969 (Bass, 
1969
). There are several reasons for this:
5
The Bass diffusion model describes rather well the evolution of markets for 
durable commodity products where every household usually needs one item of 
each, for example, refrigerators, home freezers, stoves, and lawn mowers. The 
model is also valid for social media such as Facebook and Twitter and for 
subscription- based digital services such as Internet access, Spotify, and Netflix.
5
The Bass diffusion model allows simple analytic solutions from which we may 
draw important conclusions concerning the temporal evolution of the market.
5
The model can also be used in more complex cases such as competition and 
online games to describe processes such as customer churn and the rate by 
which customers are leaving the service.
18.2 
 Bass Diffusion Model
.
Figure 
18.1
 shows a simple market model for durables (e.g., refrigerators and 
radios) or goods where only one unit of the good is needed (e.g., newspaper sub-
scription). The model is called the Bass diffusion model. Examples of applications 
of the Bass diffusion model in the digital domain include smartphone subscrip-
tions, Facebook accounts, and Twitter accounts. The container (or compartment) 
to the left in the figure represents individuals who have not yet purchased the good 
(potential customers). There are N − B such individuals, in which N is the total 
population. The container (or compartment) to the right represents individuals 
~
−
−
−
Customers
Potential customers
Innovators
Imitators
Network effect
. Fig. 18.1 The Bass diffusion model. (Authors’ own figure)