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Valuation of Network Effects in Software Markets A Complex Networks Approach

:	Andreas Kemper
:	Valuation of Network Effects in Software Markets A Complex Networks Approach
:	Physica-Verlag
:	9783790823677
:	1
:	CHF 132.70
:

:	Betriebswirtschaft
:	English

:	309
:	Wasserzeichen
:	PC/MAC/eReader/Tablet
:	PDF

The customer base is an important value driver of software companies and a reliable prediction of its development is fundamental for investment decisions. A particularity in software markets is that an individual's purchasing decision is often influenced by other users' choices. Although such customer network effects are evident, their quantitative assessment remain elusive with conventional approaches. This book contributes to closing this gap by developing methods for measuring network effects and their implications for valuation in software markets. Based on the theory of complex networks the book reveals that such diffusion processes highly depend on structural properties of customer networks. Moreover, it depicts that such insights are contributions to improve the quality of valuations in software markets. But the implications of this research also comprise social and political aspects as they can be applied in order to prevent corporate failures in all network effect markets.

	Valuation of Network Effects in Software Markets	2
	Part I Introduction	16
	1 Background and Motivation	17
	1.1 Research Objectives	19
	1.2 Research Design	21
	1.3 Scale and Scope of the Research	22
	1.4 Target Audience	23
	1.5 Course of Analysis	23
	Part II Valuation in Modern Software Markets	26
	2 Investment and Company Valuation	27
	2.1 Principles of Investment Valuation	27
	2.2 Traditional Investment Valuation	28
	2.2.1 Asset Value Approach	29
	2.2.2 Market Value Approach	29
	2.2.3 Discounted Cash Flow Models	30
	2.2.3.1 Entity Value Approach	31
	2.2.3.2 Equity Value Approach	31
	2.2.3.3 Adjusted Present Value Approach	32
	2.3 Real Option Valuation	32
	2.3.1 Option-Pricing Theory	33
	2.3.2 Real Options Analogy	34
	2.3.3 Typology of Real Options	34
	2.3.4 Real Options Management Process	36
	2.3.5 Real Options in Practice	38
	2.3.6 Reconsideration of Real Options	39
	3 Modern Software Markets	41
	3.1 Principles of Software Markets	41
	3.2 Fundamental Trends in Software Markets	44
	3.3 Characteristics of Software Markets	46
	3.3.1 Short Product Life Cycles	47
	3.3.2 Hypercompetition and Disruptive Innovations	48
	3.3.3 Intangible Assets	48
	3.3.4 Information Goods	49
	3.3.5 Nonrivalry	49
	3.3.6 Property Right Protection	49
	3.3.7 Peculiar Cost Structure	50
	3.3.8 Supply-Side Economies of Scale	51
	3.3.9 Information Overload and Trust	51
	3.3.10 Startup Companies	51
	3.3.11 Network Effects	52
	3.3.12 Reconsideration of Characteristics of SoftwareMarkets	52
	4 Reconsideration of Valuation in Software Markets	54
	4.1 Reconsideration of Traditional Investment Valuation	54
	4.1.1 Reconsideration of the Asset Value Approach	54
	4.1.2 Reconsideration of the Market Value Approach	55
	4.1.3 Reconsideration of the Discounted Cash FlowApproaches	55
	4.2 Reconsideration of Real Options Approaches for Valuation in Software Markets	57
	4.3 Reconsideration of Option Pricing Models for Valuation in Software Markets	59
	4.3.1 Analytical Solution Methods	61
	4.3.2 Analytical Approximation Methods	61
	4.3.3 Lattice Approaches	62
	4.3.4 Finite Difference Methods	63
	4.3.5 Numerical Integration	63
	4.3.6 Simulations	63
	4.3.7 Comparison of Option Pricing Models	64
	4.4 Parametrization of Real Option Models	66
	4.5 Specification of the Volatility	67
	4.6 Specification of the Underlying	69
	4.6.1 Probability Distributions	69
	4.6.2 Stochastic Processes for Valuation in SoftwareMarkets	70
	4.6.2.1 Markov Process	70
	4.6.2.2 Wiener Process	70
	4.6.2.3 Mean-Reversion Process	72
	4.6.2.4 Diffusion Process