The Learning Curve | Network Effects
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Understanding network effects and its use in today's interconnected world. Read on hasmukhkerai.com Read time: 4 mins Hi Reader, Today, we're diving into network effects. I've seen it applied in various professional formats: from franchised language schools and industrial machine distributors to employee wellness programs in large organisations. It's around us more than we know, yet often underestimated. This strategic concept is used extensively in today's highly connected world, whether you're creating a network or being influenced by one. Too often, projects stumble in executing network effects due to a lack of understanding about reaching the critical mass of engaged users necessary for a network to be truly valuable. Read on to understand the fundamentals, and maybe even open your eyes to the network effects that surround you. At a glance:
What are network effects Network effects occur when the value of a platform, product, or service increases as more users join. Each user benefits more as the user base expands, driving network growth. For instance:
Key Features
Real-world examples One standout example is Tinder. In 2012, while established dating platforms overlooked millennials, Tinder filled the gap with a mobile-first approach, free from lengthy questionnaires. But they faced a crucial hurdle: attracting early users. No one would use a dating app that had few eligible candidates on the platform. Without a critical mass, the app wouldn't be appealing. But if the problem is solved it unlocks the power of network effects. Conventionally a business would target ads at college students and watch sign-ups roll in. But network effects are more nuanced than that. There needs to be
And with dating, there are additional layers:
With low cash available, Tinder focused on the hyper-connected Greek Life at University of Southern California (USC). They sponsored a birthday party at USC and required app downloads to gain entry. The result was hundreds of new users who were hooked. Realising the success of this move, the started replicating it at other schools in LA and help users sign up. Once they hit 20k users it was a tipping point - they scaled to over 500k less than a month later. The growth never stopped. In 2021 Tinder owned 32% of the online dating market and had 75 million monthly active users. Other real-world examples include:
How to use them Be specific To open a powerful network there needs to be shared interests or commonalities within that group. For Tinder, targeting Greek Life students at USC created a tight-knit community that naturally expanded through word of mouth. The medium matters Use the communication channels preferred by your target audience. Tinder's mobile app capitalized on the smartphone trend among young adults, reducing friction and increasing sharing ease. Harshest critics first Target the toughest critics first to ensure product satisfaction and accelerated growth. Addressing their concerns lays a solid foundation for broader market acceptance. Centers of influence Identify and engage central nodes within your network—individuals with strong reputations or influence. By keeping them engaged, you strengthen your network and facilitate faster growth. A win-win. TL:DR (too lazy: didn't read)
Instead of a long list of further reading, check out this podcast discussing network effects. It's a 30-minute episode, but the link is timestamped to the section on network effects. Conclusion: If you got this far, thank you. Network effects have been an eye-opener for me, revealing their influence in various professional settings. Looking at past experiences and planning for the future, integrating this concept into my strategies feels essential. What about you? Were you familiar with network effects before? Share your thoughts and examples. If you know someone who would enjoy this newsletter, please share it with them. If this email was forwarded to you, please consider subscribing. See you in two weeks. Peace, Has
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