Capitalism Lab - Building a Software Company! - With Network Effects!

Our corporation will be the second-mover or fast-follower in the operating system market. Despite investing a lot into R&D to improve the quality of our operating system, the value will be significantly improved by increasing the number of applications available and the number of users. To boost the number of available applications, our corporation will build some of them by itself. Capitalism Lab + Subsidiary DLC + Digital DLC. Watch, learn, play by yourself and have fun! :-) -- Watch live at   / lightproton  

00:00 - Intro
08:05 - Gameplay

► The Software industry has the second highest R&D expenditure after the pharma and biotechnology industry. More than 11% of the net sales are spend in R&D in the software industry. This is only superseded by the pharma industry with more than 15%. For the pharma industry, the high R&D spend is simple to explain: On average, only one to two of every 10,000 invented substances will successfully become a marketable medicine. It seems that, also in the software industry, a high failure rate can happen. -- https://en.wikipedia.org/wiki/Softwar...

► Just think of the dot-com bubble, which crashed in the year 2000. Probably, the crash of the dot-com bubble was the beginning of a historic market consolidation in the software industry which resulted in the nowadays market dominant technology companies, such as Amazon, Google, and Microsoft. -- https://en.wikipedia.org/wiki/Dot-com...

► The quality of the software product is a key attribute to achieve user adoption and to capture a significant market share. Customers assess the value of software based on compatibility with complementary products, degree of adoption in the market, usability, and innovations. Especially for operating systems, the availability of complementary software applications and the degree of adoption in the market is extremely important. Potential users will only buy an operating system if software applications are also available. It is trivial to say, that there is very low value for an operating system, which does not have applications available. At the same time, software companies will only invest in developing a product for an operating system if the operating system has a large user base, because the user base is one limiting factor of the market size. In economics, this is called the network-effect. The network effect results in users getting more and more value from a product as more users use the same product, leading to a positive feedback loop. -- https://en.wikipedia.org/wiki/Network...

► Network effects can lead to a high concentration of market share with only a few competing companies remaining. Especially for operating systems, this high concentration can be seen in our real-life economy. For desktop computers, the market is dominated by Microsoft Windows, only followed by Apple’s macOS and Linux as well as Google’s ChromeOS. For Smartphones, the market concentration is also very high with Google’s Android and the remaining market share owned by Apple’s iOS. -- https://en.wikipedia.org/wiki/Usage_s...

► Due to those network-effects, a first-mover advantage in software industry can be observed. The software company to first reach a critical mass of customers, can reach high growth rates, which the competition may never catch up to. On the contrary, there are also examples for very successful second-movers or so-called fast-followers. -- https://en.wikipedia.org/wiki/First-m...

► In our Capitalism Lab session today, we will be the second-mover or fast-follower in the operating system market. Despite investing a lot into R&D to improve the quality of our operating system, the value will be significantly improved by increasing the number of applications available and the number of users. To boost the number of available applications, our corporation will build some of them by itself and hopefully, soon, competitors will add their applications based on our operating system. Secondly, our corporation employs a very important business model in the Internet industry, which is called the platform business model. We will build an e-commerce platform as well as a search engine. -- https://en.wikipedia.org/wiki/Platfor...

► Capitalism Lab simulates our real-life economy. Starting your own corporation, you can apply and try out business strategies which you can see with well-known companies in real-life. The Digital Age DLC adds specific mechanisms of the technology industry to the game. With the Digital DLC, software companies are added to the simulation as well as internet companies, e-commerce and the telecom business are introduced. Research and development get even more difficult in the Digital DLC with the new talent system. -- https://www.capitalismlab.com/

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