e-Reader Wars and Teaching Network Effects

Today's post is about David Carr's NYT piece titled Why Barnes & Noble is Good for Amazon (http://www.nytimes.com/2013/07/15/business/media/why-barnes-noble-is-good-for-amazon.html?pagewanted=all). I am looking at it just from the perspective of teaching about network effects.

In my MBA classes I still use the Harvard case on AOL's Instant Messenger as the basis for discussing network effects. That case describes a bare-bones setting -- 3 big companies fighting about a chat standard -- that routinely stupefies even the brightest students and highlights the key concepts of "cooperate to compete" (a phrase I took from Kenneth Preiss) in a network-externality setting.

In an effort to use a more up-to-date case, I sometimes consider adopting the e-reader wars as a basis for teaching this topic. But to be honest, I find these wars too complicated to neatly teach (or understand) the core concepts. In these e-reader wars, each firm is operating within an ecosystem of device manufacturers, publishers, and (e-)book retailers. For example, suppose a publisher decides to make its books available on Nooks. Then, while it continues to compete directly against other publishers, it will also be wanting to cooperate with those other publishers in trying to establish the Nook as a dominant standard. And so on.  I call this "three-dimensionsal cooperate to compete under externalities" -- a mouthful that I can barely grasp. How -- what -- are we supposed to teach our Executive MBA's about this?

The e-wallet wars only up the ante. Imagine teaching a case with the following actors in direct competition:
Wal-Mart, 7-Eleven, Google, Visa, Mastercard, AT&T, DeutscheTelecom, Starbucks, PayPal, and more. This is the landscape in the e-wallet standards wars. How can anyone possibly wrap their mind around the core issues of such a case? Well, as I said, in my short courses I am satisfied if we can unravel the nature of the strategic decisions in the AOL IM chat case. I believe that that case captures many key concepts about cooperate to compete, which are then applicable to today's more complex ecosystem wars.

One other question about the article: First, assuming that Amazon also believes that Barnes & Noble is good for Amazon, does anyone expect a situation in which Amazon consciously eases the pressure on B&N to help it survive? Presumably, Amazon would like to see a weakened but existant B&N. In particular, Amazon would love to see B&N figure out a way to make money off the experience it sells, without selling too many actual books. Can we imagine any scenario in which that occurs? Any scenario in which Amazon passively or even actively "helps" B&N to move there? At the same time, Amazon may be moving away from reliance on e-books and be orienting itself more towards software and apps? So, assuming that both B&N and Amazon don't want to keep competing directly on the price of an e-book, then either B&N moves towards turf that exploits its physicality, or Amazon moves towards turf that exploits its virtuality.

Or not.