Activating Network Effects #5

Businesses thrive on Web 2.0 strategies to be successful. This week’s learning will be about 'Network Effects' and the impact they have on a specific business. A network effect can be best defined as a product or service like the internet becoming more valuable as more people use it. An example of this would be every platform which currently exists. Initially, platforms have a very few number of users at the time they are released to the public. Overtime, the positive effect of the platform is recognized and the number of users grow exponentially. These effects can be categorized into four types: direct, indirect, cross-network effects, and local network (social influence). Pinterest will be the main focus of this discussion as the effects are very clear.

Direct

A direct network effect can be defined as something's value increasing as more people use it and thus becoming more useful to the user. We can all imagine that when Pinterest initially started, there were only a few pins on the site to show users what it would look like. According to a writer, a pin was worth 78 cents in sales of 2013 which was a 25% increase from the year before that. Other things included:

• A pin is repinned around 10 times and each pin pulls in two site visits and 6 page views. 
• A pin has a much longer life than a tweet as half of all visits occur a few months after the initial pin.
• Pins are 100 times more viral than a tweet due to how people use it which is ideally for browsing.

From this we can get the general idea of Pinterest's value as more users join. A straight forward direct network effect would be that Pinterest has over 70 million users and is valued more than $3.8 billion. We then ask ourselves this: Why is its value continuing to increase? It's because every Pinterest user is not alike. Some use it as an internet bookmarker, a source of inspiration, to promote their own brands, or simply to connect with others. Therefore, as more users try to create their own unique online status, the more valuable the service becomes.

Indirect

An indirect network effect can be defined as a more valuable product being created from the main service unintentionally and thus making the original service more valuable. Originally, Pinterest was made to allow users to create unique profiles by pinning links, images and things of interest so others could view their board. This eventually expanded out to businesses which would use Pinterest as a way to create a community friendly account to advertise their own products and thus create traffic to their own sites. As a result, Pinterest created a separate offer to businesses and this lead to partnerships and increased value of the service. Also, widgets were created to make it easier for users to pin a post making the service more valuable.

Cross-Network Effects

A cross-network effect can be defined as a group of users increasing the value of a service so other users may benefit. In Pinterest's case, different users add links and pins to their own profile and advertise other unique users. This action can also be done vice versa. Users can benefit from one another as it is a sharing community and will therefore increase traffic to individual profiles. User data could also be seen as value to other users as it will help to better understand the current trends or what could be the next best thing.

Local Network (Social Influence)

The social influence effect can be defined as when a user uses a service and benefits more if the people they are acquainted with also use that same service. In Pinterest's case, a user may end up making online friends as a result of their profile and pins. Upon creating an account on many social tools, the user is asked if they would like to invite/tell others in their friends list if they would like to join. It will also show those who may have already signed up making a sense of belonging for the user. Pinterest allows users to have followers and this creates a sense of community for those they may or may not know. 

Overall, these four effects create value for Pinterest by qualitative and quantitative means. Users are the heart of any network effect and the network effects are the heart of any Web 2.0 platform.

Bit of a unique read, but thanks for reading! So tell me, what's craziest network effect you've seen arise from a social platform?