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Friday, June 22, 2018

Network Effects Mean Less

Quite interesting, complex in part because we now have so many devices competing for time and interaction.  I would imagine too there is a growing 'assistant effect' that attempts to drive people in a place and time and context towards some engagement goal.  Yet the network continues to grow.  Is the effect growing?

Why Network Effects Matter Less Than They Used To
By Catherine Tucker in the HBR

When we teach strategy to MBA students, our student want magic bullets, things they can do to make their companies thrive forever. For a long time we emphasized “network effects” as a potential secret sauce for business models. Economists use “network effects” to describe contexts where a good or service offers increasing benefits the more users it has. Network effects can be direct: for example, Slack becomes more useful as other people also use Slack. Network effects can also be indirect, meaning that one set of users benefits as more of another type of users joins a platform. For example, AirBnB would not be useful for travelers if there were no apartment-owners using the platform. Similarly, home-owners would not want to use AirBnB if travelers weren’t using it to find a place to stay.

We have long taught that network effects can provide market power and sustained or even self-reinforcing competitive advantage (the best kind). The more users you got, the larger your user base was, and the more compelling your proposition became for attracting new users.

At the tail end of the dot-com boom in Silicon Valley, I wrote my dissertation on network effects. Entrepreneurs and business leaders were excited about them too. But it now seems they are not the panacea we first thought.  .... " 

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