Shot #40 : The Network Effect

Hi,

Here’s your shot.

(I have already published this post in a different newsletter but wanted to include it in the marketingshots series. You can choose to ignore if you have already read it.)

NETWORK EFFECT

Have you ever wondered how companies like WhatsApp, Facebook, Tiktok, Dropbox, Uber, Airbnb, etc. were able to Blitzscale? What is it that some businesses just grow while others grow exponentially?If you look at their journeys, you will find one secret ingredient( ofcourse, they all raised huge money but there's more to it) which is common to all of these companies. The NETWORK EFFECT.So, what is a NETWORK EFFECT?In a layman's definition we can understand it as, "increase in use of a product or a service increases the value of the product or service for others"The celebrated New York University Professor, Arun Sundararajan classifies the network effect into 5 categories, but we'll have look at the popular 3:1. DIRECT NETWORK EFFECT: Increase in usage results in increase in value. Eg. Any social media or gaming app you can think of- LUDO KING, WHATSAPP, FACEBOOK, SNAPCHAT, TIKTOK, ETC. If all your friends are using a particular app , you are compelled to use it, too. Period.2. INDIRECT NETWORK EFFECT: Increase in usage of complementary services increase the value of original product. Eg. WordPress, it encourage developers to build third party plugins and themes for WordPress platform. This has lead WordPress to become the most preferred website builder because of the largest repository of website builder plugins and themes. Think of any feature you want on your WordPress website, you will find a plugin for it the wp directory. Now you know the secret as to why companies open their APIs for free.3. TWO-SIDED NETWORK EFFECT: Increase in usage by a particular set of users result in increase in value for complementary set of users. Marketplace businesses work on this effect. Eg. More the cab drivers Uber is able to onboard, more the customers it will be able to attract or vice versa.If you're able to pull off any one of these Network effects for your business, you'll see exponential growth.I want to leave you with this thought for now. Does your business have a network effect? Or, can you create one for your business?

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Thanks,

LuvCo-founder ExperienceSaga.com(About Me)

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