How to Create a Network Effect
Creating a network effect for your company will increase its value significantly. We’re breaking down why the concept is so powerful.
It’s no secret that platforms like Facebook rose into prominence by creating public online spaces for people to connect with their friends and family in a big online community.
What once started out as a college pet project quickly became one of the biggest companies in the world. This was all thanks to Facebook building a platform that created network effects. Today, with the help of a SaaS-based online community platform, any creator can harness the power of the network effect.
Ahead, we’re breaking down what the network effect is, how to create a network effect strategy, and some modern network effect examples.
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. So, when you are building a community, a network effect describes the phenomenon where each new person who joins your community increases its value.
This phenomenon occurs each time someone new joins your community. They bring additional value to you, your brand, and the community as a whole by sharing their own unique perspective and insights. In addition to those benefits, they also are another person who can voice their praises of your work, and invite more people to join. This creates a cycle where additional members create additional value, which in turn attracts other members who add even more value.
Network effects are usually positive occurrences and come from a potential customer perceiving 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 simplest level, a network effect happens when more and more people join your community or invest in your product or service.
When you are a creator looking to bring together people around your brand, a network effect is valuable because you’re forming connections with and between your members. This focus on networking and community building will allow you to focus less on endlessly chasing the next piece of content to create and keep people’s attention. Why? Because your community members can keep the energy flowing around your brand while you’re working behind the scenes.
There are more practical benefits for creating a network effect too. Imagine that your product, service, or community relies on gaining a critical mass of members. A good example would be a rideshare app. You may be curious how a platform like that can combat the immense costs involved with that service, and the answer is reaching a large userbase. The more people who use your service means you can cut costs, increase availability, and sustain a large demand.
But this is only a basic explanation of network effects. There are actually a few different kinds of network effect strategies and each tackles the problem from a different angle.
Different types of network effects
The network effect is an incredibly powerful phenomenon for businesses and creators that can harness it, but there are different approaches. We’re covering two distinction versions:
Direct network effect
A network effect example that will be most prevalent is what we call ‘direct’ network effects. This is the kind of phenomenon that we’ve been hammering home the most so far: the more people who utilize your product or service, the more valuable it becomes. A simple historical example would be the telephone service. While it might have started as something that was a luxurious accessory for the rich, it quickly grew in value (and decreased in cost) as more adopted it. One of the reasons for this is, well, there were more people you could call!
Indirect network effect
The other network effect example that many talk about is called an ‘indirect’ network effect. This is where the usage of one product or service produces interest in another and, in turn, increases the value of the original product. An example of this would go back to our rideshare idea. As more people use Uber, more drivers will be interested in joining the platform because there are more clients. The same is true for the riders because there are more drivers who can transport them to their destinations.
Both are viable options, but for most creators interested in creating a network effect around their brand, focusing on direct network effects will prove more fruitful.
How to create an effective network effect strategy
While network effects are incredibly valuable, we would be lying if we said they were easy to attain. If there was a surefire step-by-step guide that any creator could follow to automatically achieve this phenomenon, then it wouldn’t be all that valuable anymore, would it? That being said, taking the time to come up with an effective network effect strategy can set you up better for potential success and create good business practices.
Have a clear purpose
This may seem like an obvious step, but having a clear purpose for your business is essential to achieving a network effect. Remember, a network effect is created by bringing a large group of people together around your brand.
Another way of thinking about this is that you’re building an online community around your content and services. That means that you should nail down what your business is all about, how it is filling a need for people, and how you stand out from the rest of the competition on the market. In short, your business’s purpose is the motivating factor behind why someone would like to utilize it. When you have a clear purpose, you can create a network effect strategy that is cohesive and in line with your aspirations.
Corner your niche and find your audience
The next part of your network effect strategy is to narrow down your target audience. A great way to do that is by cornering a specific niche for your business that people can rally behind.
Many creators want their business to be for everyone. But the reality is that being specific and targeting an ideal demographic is much more effective in achieving a network effect. Why? Because it’s much easier to reach a smaller group of people with specific messaging than trying to appeal to everyone with broad strokes.
The businesses you’re familiar with that have achieved network effects did so by filling a specific need to start, not by trying to be a perfect fit for everyone.
Choose an awesome platform for your business
While it’s possible to build a website and community space for your business on your own, that option is incredibly expensive, time-consuming, and often plagued with trial and error. Utilizing a SaaS platform that will give you the tools to build a community around your brand will make your life much easier. These platforms are designed with tools and features that will make it much easier to grow your business.
The best modern community platforms will give you more features and tools than you think you’ll need. Why? Because as your business grows, so too will your aspirations. Having the tools ready to go is a major benefit.
Here are some we love:
- Create online communities, online courses, and host virtual events.
- A robust website builder.
- Detailed member profile and downloadable community analytics.
- Ability to charge for paid membership, subscriptions, events, and content.
- A native mobile app available across web, iOS, and Android devices.
These are all features that will bleed into your network effect strategy and help you reach more of the people who will be most passionate about what you’re building. Now, you may be wondering what some potential businesses are that have harnessed the power of a network effect.
Ahead, we’re breaking a few down.
Businesses with network effects
We could talk about the benefits of network effects forever, but at the end of the day, it’s hard to realize what is possible without seeing concrete proof. We’ve picked out an array of network effect examples from big to small.
In the Cut
Rae Benjamin created In the Cut as an online community centered around providing an accessible place for marginalized Black and brown creatives to break into the film industry. She created a network effect around her community by providing a space for like-minded people to connect and share resources with one another. 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, virtual events, and a network of people that grows more valuable with each person that joins.
Sktchy Art School
Jordan Melnick created Sktchy Art School as a community for artists to learn portraiture, share their work, and get feedback from peers. Since launching in 2018 Melnick’s community has grown to over 14,000 members. With their large base of members, they have been able to continue to grow. Members of this community can take art classes, participate in group art challenges, and interact in an ever-growing art community. Sktchy Art School succeeded in creating a network effect that makes their community even more enticing because of the sheer volume of their community and their awesome content.
Ryder Carroll created BuJo U as a paid membership site for people enthusiastic about bullet journaling to network and share resources for how to better organize their life. After years of struggling with ADD, Carroll searched for a way to tune out the noise in his head and create an organizational methodology to unlock his full potential. Now, he utilizes the knowledge he’s gleaned from years of practice to help others do the same. His community has over 750 members and has created a five-figure revenue stream.
A Mighty Network is the best place to create a network effect
If you’re looking to create a network effect for your business, then you’ll need to choose a platform that supports your ambitions. Mighty Networks is the perfect place to accomplish this goal because we have built a platform designed to grow digital businesses with features powered by community.
When you build your business on a Mighty Network you can create beautiful community pages that are all under your own branding. Your membership site can be offered through a native mobile app experience on both iOS and Android devices. And you’ll have full access to member data. In fact, all of the communities we featured in this article were built on Mighty Networks.
Mighty Networks is making it easier for creators around the globe to build awesome online communities and grow their businesses while doing it. Best of all, our platform is constantly evolving with new features.
Sounds pretty great, right? Let’s get started.
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