Network effects - The power of the platform
Network effect
G2
IBS3 Cathy
DFLL4 Evelyn
Two-side network effect
Suppliers and demand sides attract each other
Uber
Rider and drivers
Android
App developers and consumers
Upwork
Job listings and freelancers
PayPal
Sellers and buyers
Airbnb
Hosts and guests
Attract two-sided network effects with positive feedback
Network effect and other tools
Price effects and brand effects
The misunderstanding cause the dot-com boom and bust💥
During the 2000 dot-com boom
Discounting and couponing
Created price effects
To keep the market share
Brand effects are more stickier
Difficult to sustain
The number of the users on the platform
Creating value for every user
Network effects
Positive effects
Negative effects
Create the virtuous cycle
build a longlasting network of users
Virality
lock-in🔒
To attract people notice and join
Large, well-managed platform 😃
Increasing value among people on-platform
Produce significant value for every users
Growing in user numbers, poorly-managed platform 😢
Reduce the value for every users
Demand economies of scale
Internet era 💻
Driven by
Efficiencies in social media
Demand aggregation
App development
Fundamental source of Positive network effects
The most important differentiating factor
IBSM2 Brianna
Four kinds of network effect
Structural change
Two-sided network effect
(Producers & Customers)
Same-side effects
Cross-side effects
One side users 👉 other same side users
Producers 👉 others producers
Customers 👉 others customers
One side users 👉 other side users
Producers 👉 customers
Customers 👉 producers
Same side users ⬆️
Positive
Create positive effect
EX: Xbox MMOG
Negative
Customers side
Appear downside
EX: Covisint
Customers ⬆️
Suppliers ⬆️
Other side users ⬆️
More fellow gamer
Greater fun in game
Difficult to find appropriate one
Positive
Benefit from other side
Negative
complexity & expense⬆️
EX: Visa
Customers
Producers
Flxeibility
Convenience
Potential customers
Customers
Abandon platform
Reduce usage
EX:Uber
Most internet era giants
Demand-side economics
Create value by participate in platform
EX: Uber, FB, Google
Main economic activity
1.Asset builders
2.Service producers
3.Technology creators
4.Network orchestrators
Develop and sell forms of intellectual property
Develop physical assets they use to deliver physical goods
Employ workers who provide services to customers
EX: Ford,Walmart
EX: Untied Healthcare, Accenture
EX: Microsoft, Amgen
Develop networks create value between people and companies
The most efficient value creators
SDEI M2 Antony
Scaling
Negative
Network effects depend on the size of the network
Google V.S. Yahoo
Human-edited Database
Using web links
Frictionless Entry is the key
Threadless
No marketing
Designers contact their friends
No forecast sales
Not so well
Minimize the inventory costs
By outsourcing
Customers have already announced the numbers
Important
Need both sides of the market grow
Side switching
If one side is larger, no market growth
Uber & Airbnb
Find porducer from current consumer
Too much matches
Hard to find the best match
Controls, and limits the connections with other users
A never likes B
Compatible Interests
Comparative A's Attractiveness
Bad Influence
Fix
Easy come easy go
Naked Hairy Men
Abandon the network
Filter undesirable images