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Network Effects: The underlying principle behind explosive successes.

What do Tinder, fax machines, and your hopeless friend’s latest MLM/cult ‘enterprise’ have in common?

They all make you (or someone) want to run and get others on board. 

The more, the merrier.

To follow up with the previous examples, you can easily see how people are so eager to jump on board on such projects:

  • Tinder becomes more exciting the more other people (maybe even some of whom you know in person) are on it. 
  • As soon as you got a fax machine, you immediately wanted others to have one, so you could start sending them documents. 
  • An MLM scheme provides people with a clear monetary incentive to pushily try to get others on board. 

This is what’s known as a network effect: A phenomenon observed in technological fields (but that can be applied elsewhere) where networks become more valuable when their number of users grows. To provide a clear example, the first telephone line, connecting only two people, was probably not worth much more than its individual components. The global telecommunications industry, however, is a world-wide system connecting the whole humanity, and it’s impossible to put a price on that. 

Simply put, the end users and the owner of the network both get more value with more users, generating a virtuous cycle. Facebook is more interesting if all your friends are on it. Whatsapp is more useful if everyone has it, and Panini albums are more fun if you have more people to trade stickers with. 

Now, imagine that there’s more than 8 people using the Internet right now. 

Did you know that (as opposed to most Silicon Valley-type startups) Tinder didn’t actually start in a school dorm or a garage? It is, in fact, a property of Match Group (owners of Match.com), and it was initially kickstarted by sending representatives to college campuses and onboarding them in the app. 

The trick? They actually onboarded women first, and then went on to advertise the app to male students, that then joined at a higher rate. We’ll leave it to you to connect the dots on this one 😉 

Exploiting network effects for fun and profit

Of course, applying network effects is pretty straightforwards (some would even say intrinsic) if you’re Facebook. Or developed a new technology. It might not be immediately clear, though, how to apply it to whatever your business (or the thing you’re trying to market) is. 

Consider this when building your next app. 

We’ve made a short list to help you brainstorm, get a firmer grasp, and delve deeper into this concept. Some examples of the network effect in place are:

  • Donating to the Red Cross will get you a cute little sticker so you can subtly let others know you donated, and that they too can do a good deed (and virtue signal a bit) if they also do so. 
  • Apple spent quite a lot of money on brand marketing and development of the iPhone, so we all equate their products with a specific type of person. They then added a little ‘Sent from my iPhone’ to every email to help distinguish iPhone users further from plain old PC non-innovators. 
  • Candy Crush incorporates a feature in which, to save you from paying money for more ‘lives’, you can invite a friend and get additional ones. If they join the game, they’ll show on your scoreboard, and it’ll make the game more competitive and fun for you. 

A means, not an end. 

Network effects are powerful tools to incorporate in your product and help marketing. They’re incredibly effective when used right, especially if they’re built into your idea from the start. 

However, they’re not the end-all-be-all of the business world.

A key component (and something that people often get wrong about network effects) is that they not only make things better for your brand. They make everything clearly better for your users and customers, too! Satisfying your customers’ needs is a timeless principle behind every business, and it shouldn’t be forsaken in the pursuit of a marketing gimmick.

Use network effects sparingly but creatively and considerately enough… The hidden forces operating the world will reward you handsomely for it!

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