Venmo and Network Effects
With our recent discussions about network effects, one of the first things that came to mind was the mobile app Venmo. Venmo is a peer-to-peer payment app, owned by PayPal, that links to your bank account and allows users to send money to other users and allows the users to deposit money from the app directly to their bank accounts. As a peer-to-peer app, it’s only as useful as the extent of your network on the app. The app isn’t necessarily meant for large sums of money, but rather menial expenses between friends like splitting a cab or a meal making network effects that much more important to the app. In 2014, Venmo processed over $2 billion dollars; however, even processing such a large amount it has been shown that that amount was only transferred between less than 20 million users, which means those users loyally utilize the app and share a network of peers that do as well. Due to this loyal fan base, many economists and technologists alike are touting Venmo as the next viral app due to the continuing, and impending, network effects taking effect and causing an almost exponential growth as more users recommend the app to their friends and it becomes almost unavoidable.
On top of the network effects of Venmo, Venmo is also a prime example of the “rich getting richer”. With an influx of payment apps, like Apple Pay, potential users are turning to Venmo instead of Apple Pay because of it’s already established user base. With mobile payments and banking applications becoming even more prevalent, mobile commerce is almost unavoidable and those who are joining now are going with the established products in each realm and as of now Venmo is winning the peer-to-peer market because of it’s established user base. However, an unexpected threat to that “rich getting richer” phenomenon is the fact that Apple, as a brand, has an substantially larger fanbase than Venmo and Paypal, and it’s brand influence may usurp Venmo’s dominance over that market regardless of it’s current popularity. Only time will tell which strategy reigns supreme, network effects or brand allegiance…
Source: http://thefinancialbrand.com/55401/the-future-of-venmo/