5 Most Important Factors To Consider In Achieving Network Effects In Your Business.
Understanding The Network Effects You Want To Achieve.
Network effects are a major key to your success if you only want to build a long-lasting powerful brand in your niche. The number one question you might be asking is, how does your business get the lead.
First of you must know the different types of network effects and build on them. There are two major classifications. These are direct and indirect.
What is Direct Network Effects?
Direct network effects is when the value of a product, service, or platform increases when the number of customers (buyers, sellers, users) increases causing the hyper-growth of the business.
The clearer examples are more people creating accounts on Facebook everyday. Whatsapp getting new users. More people creating channels and uploading on Youtube. People creating all kinds of videos on Tik-Tok.
What is Indirect Network Effects?
Clearly, indirect is the opposite of direct. Indirect under network effects is when a product or service depends on a two-party approach such as buyers and sellers, producers and sellers, creators and subscribers.
Examples of businesses that have achieved and maintained indirect network effects are Amazon, eBay, Alibaba, Etsy, Uber, and Lyft. These businesses (E-Commerce) need sellers to sell on their platforms and buyers to sign up and purchase their goods and services. Ridesharing platforms need passengers to order for a ride.
Airbnb needs house (home) owners to list their property and in return, people will request to use their provided space.
Another example has to be content creators who are hosted mostly by direct network effects businesses. The creator creates content on the platform and in return expects to receive a portion of the whole user-space to either subscribe just like what's done on Youtube, a like as done on Facebook, and follow as seen on Twitter.
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| Youtube subscription button |
In the content creating space, you don't necessarily have to acquire all the total users. Just a fraction of it is required. An obvious example on Youtube is PewDiePie, Wode Maya of Ghana, and the Joe Rogan Experience Podcast.
Having known the types of network effects... NOW WHAT? YOU ASK!!! 😃😃
It's time we look at the need for you to understand the core importance of network effects in business.
Why are network effects important to understand?
The success of every business depends on its ability to acquire and sustain its customers, buyers, sellers, users, and subscribers of the products or services provided. Now if you're able to achieve this on a larger scale, you don't only become the leader in the market but you eventually become the winner takes all as mostly exhibited in Silicon Valley.
Network effects is one reason you see companies going all out immediately they enter a new market. If there already exists a competitor, they do everything possible to keep up. And when there is no competition, they scale up so fast and capture all the market space. This also creates a huge monopoly in favor of the business or company.
Dealing With Pricing When Considering Network Effects.
The pricing of your services or products sometimes depends on the nature of the market you operate in. When the industry is user-based like Facebook, Instagram, Twitter, or even a Youtube channel and yet still a Podcast, it gives you the leverage to give your platform out to users for free with the hope of pricing later.
Explaining Our Examples Under Pricing.
With Facebook as our first example under price consideration, the social network presented its users a free platform to connect with their friends and family right from the beginning of 2004. In 2007, it all changed when Facebook introduced what has come to be known as Facebook ads through paid advertisement by companies, businesses, and to an extent the users themselves. That even didn't make the business a huge profit right from the start, they needed to wait until 2013 to make profits, and when it happened, the profits just skyrocketed within a short period of time.
Note that most social media platforms used the Facebook strategy to be profitable, and so we'll skip that of Twitter and Instagram. (Thanks for understanding 👍😃)
- Youtube Channels
Now, how do Youtube Channels manage to be part of network effects and become very profitable you start to ask. Well here's a quick breakdown of how it's done by the big creators. The keyword is big creators with large followers.
Most Youtubers start by updating people on their hobbies or things they are up to. Or let's say doing what you love and sharing the videos. (Don't know if it makes sense 😂). Starting out most of them have no intention of scaling what they do. But when they begin to attract lots of attention on the general platform, they begin to adopt strategies that will really help to monetize their platform which they as at that time will use the numbers as their leverage.
Some begin with the Google Adsense program, they start to have sponsored videos, others have online stores with their branded products, affiliate marketing also becomes a choice, getting their own websites and others adding blogging to their existing vlogs. With podcast also becoming an option as well. This allows them to grow exponentially and becoming very successful at it.
- Podcast
Podcast is quite similar to that of Youtubers. The only difference is that it is in audio form. Starting a podcast is relatively difficult with having absolutely no listeners from the beginning.
When the podcast channel begins to take off with more numbers of listeners and subscribers, then the monetization strategies also come to play. It's noteworthy to know that most podcast creators start without monetary intentions. But along their journey, they are able to explore different avenues to make a living out of it. And some of them have really become successful at it and more people will continue to. Most of the strategies used by podcast creators are similar to that of Youtubers. And so I'm not going to bore you with repetitive stuff. Agreed? Yes!!!
Taking Full Advantage of Network Effects.
The principle of network effects has been understood by now. Strive very hard to achieve this and subsequently leverage on that to increase your profitability and the growth of your business.
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| Business growth charts |
One thing you must take note of is that the network effect can be achieved by every business in any field. You just have to play your cards right and things will work in your favor.
As always, I really appreciate your time and effort to read and share this valuable content.
Have a fruitful business day!!!
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