Adoption curves

As a follow-up to the Wikinvest post, I grabbed the following adoption curve from Barry Ritholtz at the big picture. It's an illustrative curve depicting technological adoption. I'm assuming that the x-axis is time and the y-axis is the rate of adoption, although Ritholtz never made that comment explicitly.
Here's Ritholtz's description:

Here is a grossly over-simplified discussion of how this works: When the innovators buy a product, they essentially are paying for all of the R&D costs, and other development expenses. You paid 365 labor units for a VCR in 1972 because they were a limited production, custom product that was practically hand made. When a PC cost 465 labor units, chip fabs were nowhere near as plentiful as today -- and the biggest cost in early PCs were the exorbitant chipsets contained in them.

The early adopters pay less than the innovators, as factories get built to mass produce chips or tape transport mechanisms or cell phone keypads. What was a nearly custom made product becomes a merely limited-production, high-end one. Where the innovators paid for the R&D, the early adopters paid for the fabs and factories to be built.

The early majority doesn't get the use of the product for the first few years, but they get a big price benefit of manufacturing economies of scale. Mass production of components bring prices down; successful products attract competition to the space, and soon more manufacturers are cranking out more units. Through competition, prices begin dropping faster and faster. The late majority gets even cheaper prices. Consider the laggards and the VCR today -- they cost about $29 each.
One thing that Ritholtz doesn't mention is the chain of causality linking the pricing effects he's describing and the actual rate of adoption. My guess is that there's a feedback effect between the two, with higher adoption rates spurring incremental upgrades to manufacturing capacity and the resulting reduction in prices drives further adoption by those that might have previously been priced out of the market.

Of course, this is a highly simplified view of how the market works. Adding one layer of complexity, what happens if price isn't an issue, as it is in most internet properties? I'm thinking the curve would look largely the same, but with much sharper swings, as adoption would largely be driven by network effects, rather than any dependency on manufacturing capability. That is, without the iterative feedback loop smoothing adoption rates, you'd see much more sensitivity to single events, e.g. a bump on TechCrunch.

There's a possibility that there could be an adoption curve based on the site's evolution. Essentially, rather than pegging adoption rates to the product's monetary cost, you could peg it to the frictional cost of using the site. For instance, I stopped using Wesabe mainly because it wouldn't actually pick up some of my account information, making it much more of a hassle to use their site. Assuming that over time, they identify and fix these issues, it's possible that I'll come back. Again, just idle speculation. Anyways, back to work.



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