Network Effects and Social Networks in Mobile P2P Transfers
Venmo is a mobile payment service that allows users to settle small transactions between friends and is aimed at reducing the awkwardness and hassle of getting other people to pay you back for splitting bills and vice versa. It is by far the most successful mobile P2P money transmitter and single handedly forged a new market that capitalized on mobile accessibility and the popularity of social media websites. Traditionally, people settle small transactions among friends by cash, which is difficult since you don’t always have exact change, and the longer you wait to pay someone back, the less likely it will happen, and vice versa. Paying in checks or bank wires is also time consuming. Venmo offers the convenience of syncing with your social media and phone contacts, and also boasts of bank grade security, thereby streamlining the payment process.
Like other social networks, Venmo relies on direct-benefit effects. I joined Venmo because my friends were using it. If Venmo only had a small network of users, then it would not be very useful, since you need the other person to be a registered user in order to make transactions.
After the success of Venmo, other successful social media sites like Facebook, as well as apps like Snapchat started offering mobile P2P services as well. Theoretically, these sites should have seen great success since they already had a large customer base. However, Venmo still dominates in the market perhaps because it is so singularly focused, and it was also the first to establish itself. Out of safety considerations, customers may not want to link their bank information with multiple social media accounts, and once someone is already an active user of Venmo, there is little incentive for them to switch to Snapchat or Facebook.
Venmo is now further establishing itself as a professional service by offering new functionality to groups and organizations instead of just private users. In Q2 2015, Venmo’s transaction volume increased 247% year-over-year. This further separates Venmo from competing services.
When direct-benefit effects are crucial to a business’s success, such as was the case with Venmo, simply being the first to enter a market makes it that much more easier for you to succeed in the future. In other markets, such as retail, it is often more important to have a more refined product.
http://www.businessinsider.com/venmos-new-segment-and-its-future-2015-8