The Importance of Network Effects For Emerging Tech
https://www.forbes.com/sites/startupnationcentral/2018/03/18/why-a-network-effect-is-the-only-way-your-startup-can-win/#2b9a61a07527
The article I chose spoke about the importance that strong network effects had on the success of emerging tech platforms and companies. As we learned in class, a network effect is a phenomena in which the benefit provided to each individual user increases proportionally with the total amount of users for that product. This is extremely important for emerging platforms and new technology, as the network effect could make or break any startup trying to enter the tech industry.
Specifically, the article focused on startups founded in Israel that relied heavily on a business model centered around the network effect. One example given was Waze, a navigation app in which users provide each other with “real-time traffic, navigation and location information that can even serve to predict traffic patterns in the future.” The network effect here is very prevalent – more users means more traffic data collected, which means more value for each user. This is proof of a “pure data network effect business,” in which value is created with each additional user. Another example was Mobileye, a driver assistance tech company that was acquired by Intel for $15 billion. This was another example of a data network effect – the more miles driven by the user, the more effective the system was. Moving forward, Intel is planning on using this for the emerging autonomous vehicle market.
The importance of network effects has played a role in every instance of emerging platforms. As the article points out, consider the PC era years ago, in which the operating system was the main driver of the network effect. Microsoft won out, and this led to longstanding success for a company that continues to thrive today.
The key takeaway is that the network effect is a huge factor when thinking about which company to build, where to invest, etc. In a world where technology is rapidly evolving and being used on a mass scale, the network effect more importance than ever before.