Twitter, Instagram, Uber: Small Ideas Gaining Value Through Network Effects
Small Ideas + Network Effects = Huge Value
How can one use Twitter? To type up to 140 characters. What about Instagram? To display pictures. WhatsApp? To send messages. And Uber? To get rides.
By illustrating the relatively simple purposes of today’s popular applications, and by analyzing the common misconception that people have in thinking that the ideas are all that matter when judging a company’s worth, Sangeet Choudary is able to present his argument: Most platforms look like stupid ideas when they don’t have any users.
Choudary argues that people who complain when simple apps (like WhatsApp) get bought are just completely missing the point. The point is not that the platform is simple, but rather that “the value of the platform is created by the interactions on top of the platform” and the rate at which the value is created on the platform is what’s truly important. For example, Choudary highlights how “Airbnb is valuable when when it powers a liquid marketplace, with millions of transactions” and “Twitter is valuable when tweets are created, retweeted, and responded to.”
“We’re in the Business of Enabling Interactions!”
Movement on a Network
The platforms mentioned previously (Twitter, Uber, WhatsApp) can be thought of as networks of transfer. In some way, every platform is responsible for the transfer of something from the source to the destination. Choudary’s examples include how Twitter transfers tweets from tweet creators to tweet readers and Uber transfers a cab request from a traveler to a cabbie. Routing, a concept from network theory, is the process of selecting the best path on a network.
This leads to what we discussed in class and what is touched on in the course textbook, which is that of the tie strengths of social networks, such as Twitter, and the impact that those ties have on the paths in the network. As the class textbook states, “Twitter also includes social-network features, and these enable one to distinguish between stronger and weaker ties: each user can specify a set of other users whose messages he or she will follow, and each user can also direct messages specifically to another user.” Strong ties on social networks, specifically on Twitter, require the “continuous investment of time and effort to maintain,” which is why there is a scarcity of them.
This relates back to Choudary’s article because platforms with new ideas have to think about how to create more strong ties in the system in order to rapidly create and expand the network. For platforms to grow in value, they have to simplify the process of obtaining strong ties from a user’s perspective, which could be done by ensuring that the product delivers greater value when users share content with others, and also by just simplifying the creation process.
What’s Next?
As this Wired article states, “social products that win will focus on enabling users to create content first and generate conversations around it. The creation of the actual social network will be a final step, as a consequence.” Future platforms will be able to gain traction and expand their network by removing the barriers to the creation of content, growing the creator base, having solid curation models, and offering incentives.
The future is exciting – who knows which “simple idea” will enable enough interactions in a network to become the next big thing!
Link to the article:
http://platformed.info/twitter-whatsapp-uber-airbnb-network-effects/