The Research On IM Market Competition Of Telecom Operators Based On Network Effects Theory

Born in 1998, IM (Instant Messaging) is a kind of integrated Internet services with communication characteristics. Possessing good expansibility enables IM integrate almost all the Internet and mobile value-added services. Nowadays, IM Service could not only support instant message communication, but also many other practice as VoIP, E-mail, blog, music and Web Community Search Engine. Meanwhile, it can be used as the communication software adopted in business management and E-Commerce. IM is no longer a simple chat software but an integrated information platform combined with communication, information, entertainment, searching, E-Commerce, office cooperation and corporation service system. Therefore, IM is more recognized as "Instant Communication".Like other Internet products, IM has the obvious trait of network effect: With the increase of using of certain IM software, the users' communication range would be expanded, thus this product has higher user value. At the same time, IM users will copy a Social Network on the Internet, and this "Online Social Network"also possesses network effect: The more names in the IM Service Platform buddy list, the larger the users' communication range will be, and the higher the user value is. This paper considers that Instant Messaging has "Dual Network Effect".With the free message communication, IM has gathered good fames among users; with the stable personal relationship with users, IM builds up the firm user stickiness. Having been put on this firm base, IM is invincible in the Internet field, and becoming a direct impact on the dominating position of the traditional portal websites. Meanwhile, other practice such as VoIP and message communication of IM can be used to share the voice and short message services of telecom operators, which becomes a threaten to the core status of telecom operators' business income and value chain. Therefore, soon after Tencent's great success on "Instant Message", the IM service has gained more attention and development from those famous portal websites. Recognizing the potential threaten from the Internet IM service, telecom operators began to pay more attention to IM.Howeve, IM market is a typical network effects market. The positive feedback of the network effects forms "the stronger is always the winner; Winner Takes All" tendency among incumbents. In the IM market of China, incumbents occupy 80% market share. As a newcomer of this kind of high-concentrated market, the telecom operators are facing powerful barriers to entry. Based on Network Effect Theory, this paper is going to use the Theory of Industrial Organization and the Game Theory to make a comprehensive analysis on the competitive strategy for telecom operators of entering the IM industry, and by analyzing the market situation of China Mobile's "Fetion" service, set forth improvement strategies.The thesis consists of seven chapters. Chapter 1 is the introduction. In this chapter, the reasons of choosing this topic, the significance, the research object, the study method and the innovative points are expatiated. Chapter 2 is the literature review on the theoretical basis of this paper, including the Network Effect Theory, The Theory of Industrial Organization and the Innovation Diffusion Theory. In Chapter 3, by setting up a Two-Phase Gaming Model, the author will analyze the IM market structure influenced by the network effects, and examine the characteristics of network effects of the IM services from direct, indirect and local angles. Study on the feasibility of developing IM services for the telecom operators as a newcomer in this field will be discussed in Chapter 4 by using the "SCP" Research Canonical Form in Industrial Economics. Through building up the "Hotelling" Mode, influence essential factors will be analyzed in Chapter 5 in order to construct the frameworks of IM competitive strategies for the telecom operators. In Chapter 6, the author is going to set forth the competitive strategies and improvement suggestions to China Mobile's "Fetion" service according to its marketing research. The 7th Chapter is the conclusion of the thesis and some suggestions for future research. Among these 7 chapters, chapter 3,4,5 are the key contents of this thesis.This thesis will start with the characteristics of network effects in our "Instant Messaging" industry. The essence of network effects is the scale economy of demand: The larger the scale of the IM network, the higher the income of this IM user. Each participant will bring benefit to the entire network. The network effects of "Instant Messaging" are also reflected in the diversity of the IM access mode as well as the richness of the integration service. The mutual promotion of the "Hardware / Software" norms creates the indirect network effect. Accordingly, "Instant Messaging" is a kind of service involving human communication. In this way; it also possesses the features of local area network effects formed by particular population with shared language, culture and custom background.This paper analyzes the essence and the commercial mode of the IM services. IM is an Internet service platform with communication characteristics. It is an operable and managed networking product with wonderful transplanted and expansibility as well as powerful user stickiness. IM could realize online instant communication transcending time and space at a very low price, which conquered quickly the market empty formed by communicating requirements and the telecommunication network with high cost. When building up large installed base, IM launched an attack to every Internet field and got victory with ease, and initiated a new business mode of gaining profit on the Internet and became great threaten to relevant industries and traditional telecom services.Because of the development of the Internet and network integration, telecom operators are facing challenges and business transformation. IM, with the features of operability, manageability and powerful user stickiness as well as multi-network characteristics, plays an important strategic role in realizing the transformation from operators' value-added service to mobile internet service. For telecom operators, the necessity of developing IM service is obvious. However, as a newcomer of this kind of high-concentrated market, the telecom operators are facing powerful barriers to entry under the network effects, which relates to whether the telecom operators can enter the IM industry. Through establishing a Stackelberg Sequential Game Model, this paper will use backward induction to analyze the market structure under network effects.Facing potential threaten from the Internet IM service and its newcomer status, research on the effective strategies of entering the IM market has practical significance for telecom operators. According to the Theory of Industrial Organization, Market Concentration Rate can be decreased by the enlargement of market scale and the application of new techniques. Meanwhile, the diversity of Consumer Preference will help innovative IM operators enter the market and arrange the market structure as "winner takes most, the primary enterprises and innovation firms co-exist". IM market is a Monopolistic Competition Market. Innovation attends to the demands of monopoly interests and is the foundation of an enterprise's survival and development. IM services always need to adapt to the shifts of user requirement. The changes of user requirement and the integration of the Internet and mobile network provide wider space for the enlargement of market scale and for the New Operators' entering to market through technical innovation. With the large-scale client resources of the Mobile Communication Network, powerful capital's advantages and mature marketing and charging channels, telecom operators are capable of gaining relative advantages in this mobile IM field. That is to say, it is feasible for Telecom operators to enter the IM market.Through building up the "Hotelling" Mode, this paper will compare two competition cases of two enterprises entering the market under network market successively, and conclude the major factors that affect the new entrant. According to different network effects, we try to build up the frameworks of IM competitive strategies for the telecom operators.The strategy in the direct network effect lies mainly in how to enlarge the user scale. Diversity of Consumer Preference requires different strategies: according to the different requirement, IM providers design differential products; according to the different consumption psychology, IM operators employ differentiated marketing conceptions. Changes of product utility and customer needs always require innovation strategy for IM providers and drive them to occupy new markets, for instance, the Enterprise IM. Horizontal Merger can make full use of rich capital advantages. By using Horizontal Merger, telecom operators can enlarge the user scale directly, which is an efficiently strategy for new entrant to break through the restrains of network effects and enter the IM market smoothly. By analyzing the characteristics of enterprise's behavior in the Frame of Bertrand Competition in the Salop Circular City Model, the paper will make research on the motivation of using Horizontal Merger under network effects and the strategies of price competition. The interconnection between IM providers is also a shortcut for the enlargement of the user scale. By using Oz Shy's Undercut-proof Equilibrium, the paper will study on the effects of IM interconnection and its positivity and make a conclusion that the industry standard formed by this IM interconnection has strategic significance in entire IM market situation.On the indirect network effect aspect, the competitive strategy for IM products displayed mainly: the development of the related measures (software) to support the IM services (hardware). The main methods are enriching the acquiring means of the IM software, increasing the service accessing methods and promoting the cooperativity between IM and existing business. The main strategies are terminal control strategy and service syncretization strategy. According to the market example of "Fetion-139 mailbox", the paper analyzes the important role of service syncretization in promoting active services and enlarging user scale.As to local network effects, the paper considers that the telecom operators should grasp the opportunities brought by the new mobile IM technology: with powerful mobile client resources and the cross-network characteristics, the telecom operators can build up local competition superiority in the mobile IM field and exploit new ways in the Internet development and traditional business transformation. Based on the user growth data of Mobile IM "Fetion", this paper studies on the Bass diffusion of mobile IM by means of non-liner least-square optimization calculation with the SPSS software and puts forward the suggestion on the strategies.Finally, according to the market research and sample statistics, the paper analyzes the market status of China Mobile's "Fetion" service, and offers improvement strategies and proposals that have great practical and guiding significance.