Hyping diffusion: All adopters are not equal

Often new products, especially high technology products, exhibit a distinct spike in sells at the beginning before settling into a smooth parabolic shape. Apart from the pronounced early spike, sales of new products follow the traditional pattern described by traditional equation based diffusion of innovation models. This paper attributes these spikes to indirect network effects. To explain indirect network effects in diffusion models, the authors extend the Bass (1969) framework by proposing two categories of adopters – thus a third group of customers – and by doing so improves prediction. The first category of adopters – traditional innovators and imitators – see enough value in the new product and adopt it as they become aware of it, through either mass media or word of mouth. These adopters give rise to the initial spike often observed in diffusion of innovation models. The second category of adopters assign a value to products, depending upon the indirect network externality associated with each product. They adopt products only when the value exceeds a threshold.