Classroom Companion: Business

 
Chapter 18 · Digital Market Modeling

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18
If T
50
= 5 years and B
0
/N = 0.001, the latency period is 3 years and 4 months. If 
B
0
/N = 0.01, the latency period is still 2 years and 7 months. In markets without (or 
with very few) spontaneous buyers, the latency period is long, and the supplier may 
choose to terminate the service before the network effects become significant. This 
is the strategic dilemma in markets with strong network effects and, in which, there 
is a minor incentive for users to spontaneously join the service. The service may 
then be terminated before the market has started to mature. See also 
7
Chap. 
9
where the problem of long latency period is discussed in the context of network 
effects.
If there are only innovators (i.e., q = 0) and B
0
= 0, the solution reduces to:
B t
N
e
pt
 





1
.
In this case the latency period (T
10
) is given by:
T
T
T
10
50
50
2
0 9
0 15
=
=
ln
ln .
.
.
For T
50
= 5 years, the latency period is only 9 months. In the case with only innova-
tors, the market increases linearly, B(t) ≈ pNt, for small t. On the other hand, if 
there are only imitators, the market increases exponentially for small t, B ≈ B
0
e
qNt
. 
The importance of this observation is that initially (i.e., for small t) exponential 
growth is much slower than linear growth. This is the origin of long latency period 
in markets with only imitators.
On the other hand, observe that the time for the market to increase from 50% 
to 60% is only 6 months in the case of only imitators and B
0
/N = 0.01, but more 
than four times as long without feedback (i.e., only innovators). The conclusions of 
this discussion are shown in 
.
Fig. 
18.4
 and summarized as follows:
5
If all customers are innovators, then the latency period is short; however, the 
time to capture market shares above 50% is long.
5
If all customers are imitators, the latency period is long; however, the time to 
capture market shares above 50% is short.
. Table 18.2 Latency periods vs initial customer base. (Authors’ compilation)