Cash App and Network Effect
https://www.fool.com/investing/2019/11/13/squares-cash-app-is-close-to-breaking-even.aspx
Square’s Cash App generated adjusted revenue of $159 million in the third quarter of the year, which is more than a quarter of the company’s total adjusted revenue. Cash App was able to gain users fast and with low cost because of the network effect. Cash App’s rate of downloads has surpassed its biggest competitor, PayPal’s Venmo. The app constantly tries to add new features to attract more users. Square has a payroll product that pushed more people to download Cash App. Employees download to the app so they can be paid faster if their employer uses Square’s payroll. The app has recently added stock trading to the service. These features lead to strong user retention because users are not just sending payment to a friend for one time, but they’re also using other services in the app.
I personally have not used Cash App. I use Venmo more often. Venmo was also able to grow quickly as a result of the network effect. Since Cash App started after Venmo, Cash App had to overcome its competitor’s network effect by providing better value to potential users. I do see how Cash App’s download was able to grow faster than its competitors as it offers more features. Its competitors also had copied its features. In class, we learned about network effects or direct-benefit effects. The general idea is that there is a benefit when you align your behavior with the behavior of others. That means a good or service has more value when more there are more users. Since Cash App has more features, it has more users and better user retention. It gained users faster because there is a direct benefit of downloading an app with more users.