June 19, 2015 Jordhy Ledesma

About Network Effects

Connections

So, your plan is to ship a series of features, have thousands install your app and hope for the best? I’m sorry, but you need a better plan, specifically something that doesn’t include the word “hope” in it.

Network effects happen when your application is deliberately designed to support such effects. Network effects happen when a critical mass of users is constantly enriching your platform and, such enrichment can be monetized. Network effects translate into a virtuous cycle of value creation whose engine of growth should be apparent from day one in your mobile app or startup. Let me illustrate:

UGC (user generated content) is posted for free on your website. Bots and moderators validate that the post meets some basic standards and is subsequently up voted by the community. What are the network effects on this scenario? Well, your web site is now bigger, it has a new post and associated comments, so you can expect a marginal search engine traffic increase, etc. So an increase in the quantity of posts is somehow correlated with increases in search traffic.

Furthermore, when the post is up voted and becomes discoverable, the number of discoverable  quality posts has effectively increased in your platform and the average session time will likely increase. This is a second network effect created by UGC or more concretely by user curation.

When Microsoft announces the distribution of 10M copies of Windows they do so to seduce more developers to craft software for their platform. More distribution yields more development, but more development means greater utility for users, greater user demand and even more distribution.

You have engineered your database, your web server layer, your code base and even your sales scripts, but have you engineered network effects into your business model?


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