Network effects

Network effects generate positive feedback loops that result in superlinear growth

Summary

You can't start small and grow slowly, it needs to be widely adopted by the market or else it offers little value to potential users (get to the "tipping point").

If you can't change the economics of the product, change the perception of adoption for new users (what users expect the adoption to be in the future).

Redesign the product to give value to the individual user regardless of that user's network (LinkedIn profiles serve as professional identity for user even if that user's colleagues haven't joined LinkedIn).

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Exercise

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Direct

Increases in usage lead to direct increases in value. (Examples: Facebook, messaging apps like WeChat and WhatsApp)

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Indirect

Increases in usage encourage consumption of complementary goods, which increase the value of the original product. (Example: Adoption of an operating system such as Microsoft Windows, iOS, or Android encourages third-party software developers to build applications, increasing the value of the platform.)

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Two-sided

Increases in usage by one set of users increases the value to a different set of complementary users, and vice versa. (Example: Marketplaces such as eBay, Uber, and Airbnb)

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Local

Increases in usage by a small subset of users increases the value for a connected user. (Example: Back in the days of metered calls, certain wireless carriers allowed subscribers to specify a limited number of “favorites” whose calls didn’t count against the monthly allotment of call minutes.)

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