Network Effect
Silicon Valley loves this thing called the network effect. It's like a magical power that helps small companies become super popular and rich. Many big tech companies like Apple, Facebook, Microsoft, eBay, and PayPal have all been super successful because of the network effect. It's like their secret weapon for making tons of money.
Hey guys, the network effect used to be super powerful, but now it's not as strong as it used to be. It's when a new person joins a network, making it better for everyone else. This can make one company popular and successful, kind of like a monopoly. And that's not always a good thing because it can give that company too much control over an entire industry.
When it all began
Back in the day, all a company had to do was get a bunch of customers talking to each other to become super popular. If enough people were using a certain system to share stuff, one company would become the go-to place for everyone. Companies that could either create a place for people to buy and sell things or help people share info became really strong hubs for moving data around.
Did you know that Bell Telephone was the first big network effect platform way back in the day? They had a monopoly on the telephone industry because the government said so. And ever since then, other businesses have followed their lead and used network effects to become successful. It's like they're all singing the same song!
Alright, so first things first, you gotta set up a way for people to talk to each other. This could mean building stuff like phone lines or coming up with new gadgets. Once you've got that in place, make sure everyone can use it easily. Like, maybe sell machines that can send messages super fast, like fax machines. And lastly, try to get as many people as possible to use your service before anyone else does. If you can do that, then you're in the clear and ahead of the game.
Blissful delight
So, here's the deal. Back in the day, people had to pay a bunch of money to get on the internet. This meant they were stuck using the same network forever. It was like being in a club that you couldn't leave. This made it hard for other companies to try and join the party. But now, things are changing and it's not as simple as it used to be.
But guess what? It's way cheaper now to get on the internet! You don't have to spend a ton of money on fancy equipment just to connect to a network. And you're not stuck with one specific network anymore either. Cool, right?
Transforms
Back in the day, it used to be hard to switch from one network to another. You couldn't just easily move all your contacts from Yahoo! to AIM without a lot of hassle. But now, not only is it free to access these networks, but it's also way easier to switch between them. It's like moving your stuff from one room to another - simple and stress-free!
Nowadays, people can sign up for new services super quickly by using their Facebook, Twitter, or Google accounts. Platforms like Instagram and Pinterest can grow fast by letting users sign in with just one account. This means users can easily bring all their friends along with them. The social web has made it so easy to switch between different networks because of this, which is pretty cool!
Watching over the Group
Imagine if a company didn't have to spend a ton of money on physical stuff and could easily transfer your info and contacts. How would they keep you coming back? Is it even possible to keep people hooked without that network effect? Not!
Imagine you have a secret weapon called "stored value" that helps you make more friends and have more fun online. Instead of paying a big fee to join a cool website, you can invest a little bit each time you use it. The more you use the website, the more valuable it becomes to you. It's like leveling up in a video game - the more you play, the stronger you get!
Preserved worth
There are four different types of stored value that companies use to keep people using their service. They use these little investments to make sure you keep coming back for more.
1) Creative content: When you post stuff on social media like Pinterest, Facebook, or Instagram, it's like building your little collection of cool things. The more awesome stuff you share, the more people will like and comment on it. And the more people interact with your posts, the more popular and valuable your profile becomes!
2) Reputation: Think about websites like TaskRabbit, AirBnB, and StackOverflow. These are places where people can offer their services to others. Unlike eBay where you buy and sell physical items, these sites are all about services. One big thing that makes these sites work well is trust. When people have a good reputation on these sites, it means others trust them to do a good job. This reputation is super important because it helps everyone using the site. To build up a good reputation, you have to consistently do great work and meet certain standards set by the site. Once you have a good reputation on one of these sites, it's hard to switch to a different one because people trust you there.
3) Usage Data: When you use apps like Dropbox, Reddit, or Quora, you're helping them get smarter! These apps collect data from your usage to give you better recommendations. The more you use them, the better they get at suggesting things you'll like. This data is what makes these apps unique and valuable to you. So, the more you use them, the more they can help you find what you're looking for. It's like having a personal assistant that learns more about you the more you interact with it. And that's something you won't find on other similar apps.
4) Influence: When you follow someone on social media like Twitter or subscribe to their YouTube channel, you're creating an influence dynamic. Unlike adding friends or contacts, gaining followers is mostly out of your control. The only way to get more followers is by posting content that others want to share. As you get more followers, the value of your network grows and gives you more reason to keep posting and engaging with others.
The Pathway to the Kingdom
Building a network effect is different now than it was before. Nowadays, when users add value to the network, it helps keep them coming back and attracts more people to join. This means it's really important to get users into the habit of using the network regularly. The more they use it, the more value they add.
Now that it's easier for people to join social networks without paying a lot of money upfront, companies need to find new ways to get and keep users. It's not just about having a lot of people on the network anymore. Companies that can combine having a lot of users with offering something valuable will be the most successful.
