Mtini, Qhawekazi2024-07-292024-07-292023Mtini, Qhawekazi. (2023). Platform valuations in emerging markets: Industry specific network effects model [Master’s dissertation, University of the Witwatersrand, Johannesburg]. WireDSpace.https://hdl.handle.net/10539/39879https://hdl.handle.net/10539/39879A research report submitted to the Wits Business School, University of the Witwatersrand in partial fulfillment of the requirements for the degree of Master of Management in Finance and Investment by combination of coursework and research Johannesburg 2023Network effects are intangible assets that can create value in platform mediated businesses. Traditional accounting standards provide limitations to the ability to quantify the value created by these network effects, therefore, theoretical network effects laws, namely; Metcalfe’s, Sarnoff’s, Odlzyko’s and Reed’s laws are used as ‘rules of thumb’ to predict network value. Existing studies have largely verified the suitability of these rules of thumb by using data from developed markets with the use of overall company revenue as an indicator of the network value, albeit mixed conclusiveness and limited scope. In practice, Metcalfe’s law is the most popularly used and although business models and revenue generation differs across various industries, it is used regardless of the industry that the platform business operates in.This empirical study makes use of actual platform generated revenue and monthly active user base data from companies in the Asia Pacific emerging markets and across social network, e-commerce and search engine industries to test the suitability of Metcalfe’s law in emerging markets, regardless of industry. Theoretical value curves are derived using Metcalfe’s, Reed’s and Sarnoff’s laws to conduct a comparative test using curve fitting and the least squares method across the industries. The study finds that although Metcalfe’s law is the most suited for e-commerce and search engines; it is not the most suited regardless of industry as Sarnoff’s theory proves to be mostsuited for social networks. This proves that although Metcalfe’s law is suitable for use in emerging markets; in practice, there should be consideration of industry when selecting the most suited network effects rule of thumb to be used to predict the value of a network. In addition, the adjustment from using overall company revenue to platform generated revenue proves that using overall revenue for companies that generate revenue through platform and non-platform activities can result in the use of a network effects law that overestimates the value of the network, as seen in the instance of Tencent where Metcalfe’s Law was proven to be the best suited in the research by Madureira et al. (2013), Zhang et al. (2015) as well as Hove (2016). In this study the adjustment of revenue and improvement of the robustness of the model through use of quarterly data as opposed to annual data finds that Sarnoff’s Law is best suited for social networks.en© 2023 University of the Witwatersrand, Johannesburg. All rights reserved. The copyright in this work vests in the University of the Witwatersrand, Johannesburg. No part of this work may be reproduced or transmitted in any form or by any means, without the prior written permission of University of the Witwatersrand, Johannesburg.Network effectsEmerging marketMetcalfe’s law;Social networke-commerceSearch engineUCTDSDG-8: Decent work and economic growthDissertationUniversity of the Witwatersrand, Johannesburg