Tag Archives | Network Effects

The Opposite of Network Effects And Viral Loops

A few days ago, I wrote about network effects and viral loops.  Yesterday, I read about new private social network Pair on TechCrunch.  I work a lot and travel a fair bit, so I actually think the idea of a two-person private network to stay connected to your significant other is a great idea. I even downloaded the iPhone app and invited my wife to join. She was touched.

But the more I thought about Pair the more I realized it is a great opposite example of network effects and viral loops. Let’s start with network effects.  In most social networks, the value of the service increases as more people join.  As more of your friends joined Facebook, for example, you could keep up and in touch with increasingly more of them in one place, so stickiness increased. The opposite is true with Pair. Inviting a third person kills the intimacy factor.  Now what about viral loops?  As far as I can tell, Pair only has one.  Every time your significant other posts a picture, video or cute message it’s going to bring you back. But the problem is that as soon as you experience fatigue with the service there is no other hook.  I am an extremist on Facebook. I use it heavily for weeks or months and then not at all for a while.  Something one of my ~300 friends posts is always the catalyst that brings me back for a period of heavy usage.  But Pair doesn’t have this luxury.  Sure, it has some old-school off line word-of-mouth potential where you hear about other friends using it, but that is not a mechanized viral loop that will scale.  Path is another private social network that suffers some of these symptoms, but at least Path is for your whole family and closest friends, so there are network effects, even if they are within a smaller pool of people, and there are more than two people to count on to bring you back.  So what does all this mean? Well, unless Pair figures out a way to add network effects and viral loops without breaking the intimacy factor it was founded on, is not going to have the kind of insane growth trajectory that Facebook and Twitter enjoyed to make them huge over night.  More likely, it will grow very linearly using old-school marketing techniques like PR and advertising.  What’s wrong with that you ask? Well,  the most likely business model for Pair is advertising.  I can tell you from experience that buying advertising to bring to people to you service so you can sell more advertising to monetize them is called arbitrage and it is extremely hard and the margins are very slim. To make real money at the advertising game you need reach and frequency, which means you need scale.  Let’s see how fast Pair can scale without network effects or more than one viral loop. 

17 more posts to go in my 30 posts in 30 days challenge.

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Network Effects And Viral Loops

Network effects and viral loops are the holy grail of growing the user base of an internet service rapidly and cheaply.  I talked a little about network effects in my previous post about using radically reduced pricing to disrupt a market. But in case you missed it, when network effects are present, the value of a product or service increases as more people use it.  Online social networks are a great example; sites like Facebook, Twitter and Google+ become more useful as more users join.  Groupon is an amazing case study of leveraging network effects to get new users to invite everyone they know your website, as the more people they invite, the cheaper the products and services on Groupon become for them and everyone else. The businesses that list their services on Groupon get access to massive amounts of new customers in exchange for offering them volume discounts. In other words, the value of Groupon increases for everyone involved the more people use it.  At SalesCrunch, we tap into network effects by capturing and measuring all the knowledge that is transferred in business meetings across your company.  The more people that have meetings, the more statistically relevant, actionable intelligence we can give them in return.  The graphic below is a perfect example. Because we measure when people are paying attention in meetings that happen on our platform vs. when they are off checking email, for example, we can look at thousands of meetings and tell you the optimal length of a meeting based on how long people tend to pay attention and at which point they tend to drift off.

Viral loops are the self-perpetuating mechanisms that constantly bring new people to your service.  The first well know example is hotmail.  Every hotmail email had “get your free hotmail account” in the signature, which drove millions of new users in a matter of months. Facebook’s photo tagging feature is also a great example.   You upload photos of you and your friends and tag everyone in those photos. Your friends and your friends’ friends get an automatic email from Facebook letting them know they and/or someone they know have been tagged in one of your photos.  That brings them to Facebook too see the photos, which increases the likelihood they will upload their own photos and tag their own friends, which brings those people to Facebook to see photos of themselves and people they know, and so forth and so on.

As you can see from the below diagram, the way this plays out at SalesCrunch is that our users bring lots of attendees to our platform for meetings. Some percentage of those attendees become users and bring even more attendees.  More attendees drives more users, and more users drives more attendees, etc.  Per the above, the more users using the platform the more interesting and statistically relevant the information we can provide you about the effectiveness of your meetings.  That intelligence spurs more enterprises to have more employees host more meetings with more attendees to get better insights and so forth and so on.

In a nut shell, network effects and viral loops can drive massive amounts of users significantly faster and cheaper than any traditional marketing.  The key is to build them into your service from the very beginning, not try to bolt them on after your product is built.

20 more posts to go in my 30 posts in 30 days challenge. It is actually getting easier and more enjoyable to write a post every day.

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