To what extent can Network Effects drive the growth of a business?
Learning about networks effects in class made me think about the extent to which our decisions are influenced by social networks and how companies can leverage these effects for their own gain. The article presents an interesting view about how network effects can be said to account for almost 70 percent of value in the tech industry.
The resource describes that having a network effect is perhaps the single most predictable attribute of the value of fast advancing technology companies. The primary rule in the playbook of network effects is to make sure that having one customer will increase the value of the next. This will make the strategy strong to face new competition, given the popularity and value it would have already gained.
“If Your Startup Doesn’t Have Network Effects, You Need to Rethink Your Strategy” James Currier, the writer claims. While initially network effects were accidentally discovered, it is important to incorporate network effects into the business plan. Growing big should only make the product more valuable for customers and make it easier to grow bigger until you reach a stable point. The most important factor is that users are now able to aid the creation of value. It is not only about the product going viral but the product increasing in value with each new user.
Viewing business strategy with the network effects principles not only allows a better understanding of aspects of strategy but lays out a solid base of mathematical reasoning behind decision making and strategy. Understanding network effects has far reaching consequences in the realms of business strategy and growth globally. Leveraging the network effects can be key to the success of a business venture.
Link to article: https://www.nfx.com/post/70-percent-value-network-effects/