Steve Jobs and his iPhone, Travis Kalanick and Uber, Brian Chesky/Joe Gebbia and Airbnb, or Mark Zuckerberg and Facebook. These are some of the most important and significant companies in the world. Each one is very different in many aspects, but there is a single property that defines them all and underlies their success. That property is the Netwok Effects or Network Effects.
The story about the great modern visionaries is that they had a great idea and found a way to make it successful. Indeed, the success of their companies is explained in part because these entrepreneurs managed to convince investors to bet on their product, and also because they managed to convey to millions of consumers that their respective proposals were valuable.
Network Effects is one of the phenomena of the world of technology and business because it precisely finds an explanation for the success of these famous companies without falling into the cliché that it was just a day of genius mixed with a stroke of luck.
Today in this article, I want to explain to you some of its key features. But as they say, let's start at the beginning!
What is The Network Effect?
The Network Effect occurs when a product or service becomes more valuable to its users the more users use it. This happens not only because its value grows as more people use it, but also because the mass increase in users benefits the experience or the product itself.
The Network Effect is seen as the key dynamic behind many of the world's largest digital companies. This reaches a larger scale thanks to technological advances and the information society. In other words, the Internet makes it possible to boost the growth of a project in a short time due to its great scope.
When a platform appears with few users, its growth is slow, but as the number of these increases, the interest in it also increases and this is what attracts more and more people.
Why is The Network Effect worth it? How important is it?
The Network effect explains the power of digitization, the Internet and the connection between individuals to improve products. But there is something key to clarify and that is that the Network Effect does not refer to the number of people who are on said platform, but rather how many people actively use it. The use is what really gives value.
This digital transformation has modified or influenced many ways of doing business. Today it is easier for small businesses to grow and bring the value of their offerings to more customers.
By easier, I mean that large investments in advertising are no longer necessary to get noticed in the market. However, it is necessary to do hard work and structured planning to achieve such growth, and one of the main factors responsible for these results is the Internet environment, since thanks to this resource it is possible to reach a large number of people from one certain segment.
By this means, it is much simpler to obtain the Network Effect, which is an essential feature for the expansion and reach of your business.
What do you have to do to create The Network Effect?
As we have been mentioning, what gives a project the most value are its users and not the project itself. An idea can be innovative and have an excellent proposal, but if it does not have the support of the public in a consistent way, it will not have a satisfactory growth.
It is for this reason that a good Digital Marketing strategy is essential from the beginning, not only to give your business the initial kick so that it can continue to grow thanks to the Network Effect, but also so that it can be expanded over time.
A clear example is social networks. What makes a social network important? The answer is quite clear: its users.
The more users a social network has, the higher its growth will be, since new users want to be where most of their social circle is.
How is The Network Effect measured?
Every business is different based on the particular product, audience, and environment, so there is no one-size-fits-all metric.
In general, though, it's important to keep in mind that if your product becomes more valuable as more people use it, then you'll be able to create and grow that value for users and your business.
On the other hand, it is necessary to take into account the degree to which the value increases with each new customer and the ability to attract them. In other words, if the cost of attracting a new customer is greater than the value that it generates through the Network Effect, we will not be dealing with a good deal.
There are also metrics related to acquisition. That is, organic users versus paid users. In a Network Effect business, the ratio of organic users to paid users should increase over time. This is because as the network grows and becomes more valuable for users to join, more users should want to join on their own.
What is an impact product and how is it related to The Network Effect?
Product design, as a verb, is to create a new product to be sold by a business to its customers. In this definition, the word business is very important. And it doesn't necessarily refer to money, it refers more to value.
In general, every product must be capable of creating, delivering and capturing value. Personalization is the adaptation of the offer, based on the characteristics of the user or consumer. The idea is to meet customer needs in a more effective way to increase customer satisfaction and build loyalty.
We currently prefer personalized experiences because they are a way to deal with information overload and the feeling of lack of control that this generates.
A company personalizes when it thinks of the consumer and facilitates the decanting and decision processes, compared to the offers it receives. In general, when a company can make a personalized offer, it also has greater potential to take advantage of the Network Effect.
How do you know you have an impact product?
The product is much more than the solution. The design of a product is the design of the entire business model itself and must include three fundamental things:
- Create value, that is, solve user problems.
- Deliver value or deliver the solution to said users.
- Capture value, what is getting users to pay for the solution and be happy customers.
The universal goal is to make customers happy. Happy customers pay, and getting them to do so repeatedly and efficiently is the goal of every business. Making customers happy is also the goal of high-impact products.
What do you have to do to create an impact product?
Small and medium-sized companies face a reality where consumer expectations change rapidly, so putting products that have an impact on their lives in the hands of people will be what really differentiates your company.
It is also essential to attract users correctly, for that it is important to consider some success factors:
- Partner with companies that create complementary products or services, so you can offer more value to your users by increasing your network and in turn other companies will also want to create products for your users, being able to offer more and more options.
- Create a good business plan, thinking about the scalability and needs of your audience.
- Try to retain your customers, they will be the basis for the growth of your business.
- Focus on the user experience, more and more consumers demand a good experience, therefore, it is the best way to retain them.
On the other hand, it is known that the integration of the departments of a company greatly favors the development of a business. A joint work allows to satisfy the client in an integral way, attending to her needs and providing an excellent experience.
In this digitized world, businesses must take advantage of the resources they have in order to become giants. The only thing you need for this is an innovative, scalable idea that has technology as an ally and that meets the needs of a sector.
With these characteristics and with the help of a good marketing strategy, it is possible to achieve wonders. The digital transformation has allowed the Network Effect to have excellent results, therefore, it is essential to understand this concept very well. Do you dare to try it?