What is a network effect?
A network effect refers to a situation where the value of a product, platform, or service increases as more people use it. In community building, a network effect refers to the phenomenon where the value of a community increases as more people join.
For instance, if you build an online community, this phenomenon occurs with the addition of every new member. As each new person joins your community, they bring additional value to you, your brand, the community, and its members. Those members then encourage others to join, which adds even more value to the community. This creates a cycle where additional users create additional value, which in turn attracts other users who add even more value. Network effects are usually positive and derive from a potential customer deriving more value from your product or service because of how many other people they see using it.
How does a network effect work?
At the most basic level, a network effect happens when more and more people join your community or invest in your product or service. Each new person that joins brings with them their own unique perspectives, experiences, and expertise which creates additional value for you, your brand, and your members.
As a creator, the network effect is so valuable because as you build a network of connections between the members of your community, you can focus less on endlessly producing content. Within a thriving community, the valuable ideas and expertise your members bring to each other will keep the conversation going long after you release new content for them.
If you have a product that relies on gaining a critical mass of users, like a rideshare platform, then your service becomes more valuable as more people use it. Why? Because the more people using your service means you can cut costs, increase availability, and sustain a large demand.
What are some examples of businesses that use network effects?
In the Cut: Rae Benjamin created In the Cut to be an online community centered around providing resources and connections to help marginalized creatives break into the film and television industry. In the Cut has quickly grown in scale since its launch in 2020 and now has over 1,000 members. On their Mighty Network, they offer paid webinars, job postings, a network of like-minded creatives, and even host virtual events.
Facebook: It’s no secret that Facebook largely transformed the way we all think of social networks. Their platform has over two billion users and is a key example in any conversation surrounding network effects. As more people joined their platform, it increased their value as a social network and edged out the competition at the time, like Myspace. It’s important to note that Facebook itself reaps the benefits from the network effect — not the creators who are sharing content and creating Groups
Sktchy Art School: Jordan Melnick created Sktchy Art School as a community for artists interested in portraiture to learn new skills, share their work, and get feedback on their work. Since launching in 2018 Melnick’s community has grown to over 14,000 members. Members of this community can take art classes, participate in group art challenges, and interact in an ever-growing art community.
Airbnb: Airbnb has quickly become the go-to platform for homeowners looking to rent their properties for short-term stays to traveling customers. They are an example of a network effect because the value of the platform increases as more and more people join the platform looking to rent, which gives property owners a consistent flow of business. Additionally, value is created for renters too, as more homeowners open their properties for rent it provides renters more options to choose from. The value of the network grows as more renters and more homeowners join the platform.