Skip to main content

Network Effect and Venmo

This Forbes article discusses the importance of Venmo in online payments nowadays. There are nine major benefits and predictions discussed for the future of the platform. These include: innovation tempered with regulation, first-mover advantage, disrupting the banking industry, network effects, simplicity, platform owners’ advantage, shift towards mobile payments, existing social networks, and finance giants. As told in this Forbes article, Venmo’s popularity comes from its user-friendliness and constant innovation. Because it was the first to enter the online payment space, their marketing has kept them ahead of incoming competitors. It is anticipated that Venmo will be disrupting the banking industry due to crypotcurrency. Venmo currency has several advantages over predecessors like PayPal, such as anonymity and instant transactions. Furthermore, both Venmo and PayPal benefitted from their service’s ability to operate across institutions, not just within the realm of a certain personal bank network. This being said, another prediction for the online payment market is that the United States will be moving towards mobile payments, like other countries already have. With this, it is predicted that already-trusted providers like Apple, Google, and Facebook offering ways to send and receive money (either via downloadable apps like Apple Pay or even already installed features through Gmail) may gain over third-party companies like Venmo due to increased convenience and integration into consumer’s daily lives. An effect of such services may also be that the financial services industry will introduce similar platforms themselves to compete for success on this playing field.

The final two points discussed in the article relate primarily to the concept of network effects being discussed in class. A network effect is when any user’s product usage increases the value for all users. In the case of an online payment exchange mechanism like Venmo, a large network is needed for its features to have a use. Though the convenience of these features can help drive adoption and increase the usage of the product, momentum is needed for a platform like Venmo  to succeed. It is for this reason that the social marketing previously discussed is so important to Venmo. The marketing of the product will not succeed until the company can get it past its tipping point (called in lecture as the “low equilibrium” or z’), since unless the product is widely used potential purchasers will not want it. Once this critical fraction of the population adopt the product – a large initial group – there is an upward push towards a higher equilibrium, which is stable in attracting a certain usage amount. Due to this phenomenon, it makes sense that the online payment space is most likely to be turned over to platforms put forth by already-succeeding social networks. Since the bulk of payments occur between peers, these exchanges are only significant if they are accessible to a person’s current social network. By combining existing social networks like Facebook, Twitter, and LinkedIn with the opportunity to exchange funds, consumers are compelled to adopt the product and usage of the feature increases.


Leave a Reply

Blogging Calendar

November 2018
« Oct   Dec »