Identifying Effective Online Service Strategies: The Impact of Network Externalities and Organizational Lifecycle Stage

Abstract

This study presents a framework for identifying effective online transaction-based service strategies that incorporates network externalities and organizational life cycle theories. The framework considers changes in marginal costs, marginal revenues, and service value as the company moves through its initial three life cycle stages (start-up, growth, and maturity). Propositions describe potentially effective strategies for service sites in each lifecycle stage. Each of the propositions is supported by real-world strategy examples and research related findings from three industries – online auctions, online career services and online travel services. Start-up strategies must focus on increasing the number of service users, growth companies need to differentiate themselves from their competitors, and large mature service providers can take advantage of their financial resources and service value by raising entry barriers to maintain their dominant position. This study provides a multi-theory perspective that can be used as a basis for further study of strategies used in these industries.