Exploiting network effects in the provisioning of large scale systems
Online services today are characterized by a highly congestion sensitive user base, that also experiences strong positive network effects. A majority of these services are supported by advertising and are offered for free to the end user. We study the problem of optimal capacity provisioning for a profit maximizing firm operating such an online service in the asymptotic regime of a large market size. We show that network effects heavily influence the optimal capacity provisioning strategy, as well as the profit of the firm. In particular, strong positive network effects allow the firm to operate the service with fewer servers, which translates to increased profit.
© 2011 ACM. The first two authors acknowledge the support of NSF through grant CNS 0846025 and the NetSE grant CNS 0911041, ARO through MURI grant W911NF-08-1-0233, DoE through grant DE-EE0002890 and Bell Labs. Bert Zwart is also affiliated with VU University, Eurandom and Georgia Tech. His research is sponsored by an NWO VIDI grant and an IBM faculty award.