The future of Network Effect

It is not a one shoe fits all kind of scenario. Think of the network effects for companies like; Facebook, Uber, and LinkedIn.

All three had different network effects.

What is Network Effect?

Describes what happens when products get more valuable as more people use them.

The Future of Network Effect

According to Future by a16z , there are key principles to forecasting the future of network effects.

• Start-up founders should understand what value proposition drives the network effect, its weaknesses, and strengths, and how this metric evolves.
• A key factor for network effect moreso in marketplace/platforms is to understand if users/inventory are differentiated or commoditized.

Platforms/marketplaces with more differentiated inventory have stronger and longer-lasting network effects because they have a diversity of inventory that suits the unique preferences of customers (while maintaining just-enough substitutability across that inventory as well)

• If someone has a similar network as yours, there is an existential risk because they can easily get into your space. Think Stories from Snap that Instagram just pasted.

The Cold Start Problem

How to start and scale network effects by Andrew Chen

Stage 1; The Cold Start

Here you add a small group of the right people using the product the right way.

An atomic network concept is applied for the smallest stable network where other networks can be built and then copy and paste to other networks.

Stage 2; The Tipping Point

When the network effects would tip over on their own by creating a repeatable strategy building many more networks to expand the market.

Stage 4; Hitting the ceiling

Some of the common causes when a network hits the ceiling are;

• Market saturation
• Churn from early users
• Degradation of marketing channels
• Lower quality engagement from new users
• Bad behavior from trolls

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Happy Thursday

Learn and Grow

Okerosi Davis