In contemporary high-tech markets, a continuous
stream of new products and technologies hits the
market at regular intervals, challenging established
positions and hierarchies.
computer products and services markets because these markets are supposed to exhibit
strong network effects. Yet we found that not
only did quality prevail in these markets, but
network effects enhanced the role of quality.
In other words, network effects drove customers to quality and superior brands.
How Quality Drives the
Rise and Fall of High-Tech
The conventional wisdom is that products that have a
strong established base of users can often trump higher-
quality alternatives. But recent research suggests otherwise.
BY GERARD J. TELLIS, EDEN YIN AND RAKESH NIRAJ
Why does the free Linux operating system not
make;more;headway;against;Microsoft;Win-dows? Why does Apple still only sell a minority
of the personal computers in the United
States despite its devoted followers and the
runaway success of its iPad, iPhone and iPod?
network effects — a term that refers to the additional benefits that accrue to a product or
its accessories with an increasing number of
users. For example, far more programs run
In economics, the conventional wisdom
is that network effects can and often do
overwhelm quality considerations, en-
abling early market entrants to dominate a
classic example is the success of the
superior Dvorak keyboard. Some econo-
mists have argued that new consumers
choose their brand primarily on the direct
or indirect benefits accruing from the net-
work of current users, rather than solely
from the intrinsic quality of the brand.
How Quality Wins
If network effects were dominant, an early
entrant would dominate a market, and
there would be no subsequent changes in
market leadership. But in the markets we
studied, there were frequent changes in
•; The;average;duration;of;market;leader-ship ranged from 5. 5 years in operating
systems to as short as two years in Web
•; The;average;duration;for;market;leader-ship in the markets we studied was only
3. 8 years.
•; In; 10;markets,;there;were;multiple;
switches in market share leadership.
•; Overall,;there;were;a;total;of; 34;switches;
in market share leadership.
market leadership, were those changes related
to quality? Based on our study, the answer is
yes. Consider the market share flows of the
three major word processing brands between
WordStar, the early market leader, started
covered. Consequently, it lost
its dominant market position
Word and WordPerfect to
battle it out for quality and
market share for the next few
clear leader in quality and, a
couple of years later, became
; G.J. Tellis, E. Yin
and R. Niraj,
Quality in High-Tech Markets,”
Journal of Marketing Research 46,
no. 2 (April 2009):
14 MIT SLOAN MANAGEMENT REVIEW SUMMER 2011