Economic aspects of WBAN standard

Standard of body area network, as a description of network organization and interoperability of devices coming from different producers, can be considered as a compatibility/interface standard. This kind of standard has two very important concepts, which describe its influence on the market, as well as market’s influence on the standard. These two concepts are: network externalities and switching costs. They will be explained in this post, and also it will be shown how it works in practice, on the example of WBAN.

  • Network externalities

We can distinguish two types of this effect. Direct one is an effect of size of the network on its value that it presents to users. The bigger the network, the more useful it can be. Most famous examples of this kind of this connection is a phone. Usefulness of having a phone lays not really in the phone itself, but in the connections that a user can make to other people. That means that growth of this kind of popularity of such technology will speed up with each user joining the network. Other examples of this kind of effect is ex. social portals (Facebook, MySpace etc), email.

Second type is indirect one. It is based on the fact, that a user who already bought a product in one technology will try next time to buy a product, which is compatible with it. It can be strongly seen with computer market – after buying a hardware platform in one of technologies, software has to be chosen from compatible solutions. It is even more visible, but in a bit different fashion in the market of e-book readers: when a user decides to use a specific solution and buys a collection of books, there in most cases is no way to transfer them to a competitive reader.  But this will be actually discussed more in next point.

It has to be noted though that a solution allowing cooperation with larger group of different competitive technologies will be more appealing for users.

  • Switching costs

A different economical concept that concerns standardization is a concept of switching costs. This is based on the fact, that in real life nothing is for free. Each change of used technology is normally associated with a cost. Not only a cost of new purchase (transaction costs), but maybe also with some time and effort spent to get accustomed with this new technology (learning costs). As a third kind of costs (artificial costs) we can distinguish costs that are introduced by the companies to hold a user to their technology or service. It can be a cost described in a contract for breaking it before a specified time (as with GSM carriers), but also in a more positive aspect – loyalty programs in airlines/gas stations/ supermarkets. These switching costs can lead sometimes to a situation where the profit of changing a service of technology will be smaller than associated costs, thus limiting a choice of the user.

How WBAN standard is situated in all of this?

This question is not fully straight forward. Of course as an interface standard WBAN will be highly influenced by both of this phenomenon, but we have to take into account that this technology doesn’t have a direct predecessor. We can of course try to find some connection with wireless standards already available on the market, what will be discussed in later posts, but I believe it would be a bit farfetched. For example we could argue that Bluetooth technology could and does perform similar function – it ties several devices on the body area, with cooperation of product of different manufactures. Thus we could expect that switching cost would be high for users, who want to use it in personal manner, but we have to keep in mind that these two technologies do not rule out each other. It could be even an aspect giving advantage to this standard – with a proper set of interfacing devices available on the market, it could promote WBAN as a way to tie all these devices together in one network. Later on when WBAN will reach expected level of market penetration, interfacing devices will become obsolete.

Also in case of more professional applications, such as medical monitoring, there is no technology that currently takes place on the market. That of course doesn’t limit costs of purchase, or costs of learning new technology, but it’s not connected with a process of exchanging old to new, but more with a process of introducing new functionality.

Network externalities are another matter. This technology will take a full advantage, but also feel a full burden of this effect. At the beginning it will be possible to start slow introduction in hospitals, where all set of devices can be bought at once, thus allowing to obtain already a high initial gain of such change. For personal use that requires a good will of main manufactures in different fields. For example at the beginning it could be introduced as a communication between training equipment (step counters, bike meters etc) and a cell phone/mp3 player, and later on the usage could be broadened. Such approach could introduce this technology where network effect is not so important and later on basing on initial penetration bring it to more sensitive applications.

An indirect effect is obvious – it makes only sense when a person buys devices incorporating this technology, as this is only way to form a true body area network. A direct effect depends on the final vision of adaptation of WBAN users will evolve. It becomes more and more apparent that world is connected in a network of size and shape previously unimaginable. At the moment each user’s computer is an end node of this network, but with use of WBAN technology, we can become a part of the network itself. In such a case direct effect would be very important, but as this idea may seem a bit scary it is possible that these two networks will be kept separate- limiting direct influence.

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