Feb 14, 2023
Today’s episode is all about the network effect. This is
something I don’t talk about all that often as it isn’t purely
behavioral economics related, but I did the original episode
because a listener requested it and it was really timely as at that
time early on in the pandemic. This episode first aired in June of
2020 at a time where people were really looking to shift into a
virtual presence. And not surprisingly, there is always a bit of a
“field of dreams” mentality with these things, so I wanted to be
sure to share a bit about the nuance of networks and how they
create value, with tips for people to keep in mind to increase
their chances of success.
So, you may be wondering, if this doesn’t come up often...why
the heck are you talking about it again now?
Well, I am delighted that on this coming Friday’s episode, I had
a chance to sit down with Gina Bianchini, Founder and CEO of
Mighty, which includes Mighty Networks (the platform the BE
Thoughtful Revolution has been on since May of 2021). She has a new
book out called Purpose, which is all about creating communities
and their importance for us as humans. Because of her Silicon
Valley background and history of building great communities, we
talked about the network effect in the conversation, making it a
great opportunity to refresh this episode as you get ready to tune
into that conversation on Tuesday.
As you listen today, I encourage you to think about communities.
What have they meant to you personally in the past? Where do you
connect with others? What do you love about your real communities —
those in person you have had over your lifetime? Who do you feel
closest to, and what is it you bond over? Is any of that present in
your business now? What about your social media experiences? Just
keep that in mind as you listen to this episode on the network
effect today, as it will put you in a really great place for the
conversation with Gina in episode 263 which is coming out in just a
couple of days. (And if you aren’t already subscribed to the
podcast, now is a great time to do so!)
- [00:38] Today’s episode is all about the network effect.
- [01:30] I am delighted that on this coming Friday’s episode, I
had a chance to sit down with Gina Bianchini, Founder and CEO of
Mighty, which includes Mighty Networks, the platform the BE
Thoughtful Revolution has been on since 2021.
- [03:18] Quick shoutout to Clayton Key for recommending the
topic of this episode!
- [04:46] The network effect is when the value of the business
increases as the network grows.
- [06:27] The network effect makes it so new people joining the
network increase the value for everyone.
- [08:49] The three most common types of network effects are:
direct, two-sided, and local. A direct network effect is when an
increase in usage and users leads to a direct increase in the
product or service’s value for other users.
- [09:55] With the two-sided network effect, when someone from
one user group joins the network the value increases for one or
more of the other user groups.
- [11:14] The key difference between a two-sided and a direct
network effect is that the type of user joining matters.
- [14:01] To leverage the full potential of the network, any
social platform needs to maintain and monitor the quality of its
users to ensure there are not bots and spam
- [15:30] The last type of network effect is the local network
- [18:10] When you're talking about global effects in a network,
it means it is impacting everyone across the entire
- [19:38] Network externalities influence a network effort and
they can work hand and hand; they are not the same thing. A
business that is not built on the network effort still should be
considering those network externalities to increase sales. A
network effect is not the same as going viral.
- [20:57] There are serious hurdles to keep in mind in this kind
- [22:36] So when setting up this model remember you need to be
able to stick it out for a while upfront while it may be costing
you money knowing it will pay off once you hit critical
- [23:44] This platform model is looking for quality growth not
- [25:04] Network effects are not quite a house of cards,
but being dependent on users working harmoniously together does
make a somewhat precarious beast that needs constant monitoring and
- [27:32] The five C’s of network effect are connection,
communication, collaboration, curation, and community.
- [29:11] People like and value things more than they invested in
building themselves (IKEA Effect!) so if your users help build the
platform, provide feedback, and see it being implemented they will
overlook small flaws that would otherwise irritate them because
they helped to build it.
- [30:43] You need to start with a small enough group to get the
value for people early. Focus on operational excellence, great
branding, and high value so most people who join the network stay
for the long haul.
- [31:41] Those network externalities of social proof and herding
will be very valuable to attract new members to the network. Frame
the messaging in a way to showcase the value.
- [32:54] You can also have a powerful default option to make it
easy for someone to choose to join the network. You want it to be
as easy as possible, framed with the value, and set up so you can
be part of their habits.
- [35:37] Brand extensions are a delicate balance of finding
something that is related enough to make some sense for tying it to
the original brand but not so close it feels like it should have
been the main offering, to begin with.
- [37:03] Melina’s closing thoughts
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