For HW:

• HW’s profit potential will be greater when

Direct network effects are larger;

Indirect network effects are larger and more content is available for the new system early on;

• When network effects are weak, HW prefers a slower pace of adoption;

• When network effects are strong, HW prefers a faster pace of adoption, but not too fast;

• When both direct network effects and indirect network effects are weak, the new system will not be profitable for HW unless or until there is both enough users and enough content; and

• When either direct network effects or indirect network effects are strong, the new system will not be profitable for HW unless or until there is either enough users or enough content.

For SW:

• SW’s profit potential will be lower as users and content start to move from the old (established) system to the new one until some threshold level of users have adopted the new system;

• SW will initially be more reluctant to provide content for the new system when network effects are larger

• SW will prefer a slower pace of adoption when
  • The old system is relatively profitable.  This will be the case when
    • Network effects are stronger, and/or
    • There is a high degree of content complementarity (later content enhances the value of earlier content);
  • There are large fixed costs SW must incur to transition from the old system to the new one;
  • There are large fixed costs associated with serving multiple (i.e., both old and new) markets.