Andreessen Horowitz general partner Andrew Chen explores the network effects powering the growth and success of myriad companies, including Reddit, Microsoft, Uber, YouTube and Craigslist. He presents a taxonomy of network effects with illustrative case examples and other insights. For those planning a start-up, Chen provides advice and examples for each step. And if your project has already reached “escape velocity,” Chen will guide you to strong results.
Network effects are the secret force behind tech’s most valuable companies.
The sellers of traditional goods tend to focus on how users use their product. They expand their market by adding more and better features. By contrast, networked products focus on user interactions and grow by attracting more users. This has become the unspoken asset that impels the success of today’s significant technology companies.
Three network effects can drive a product’s success:
- The Acquisition Effect – The user population increases through viral growth, building the company’s economic base.
- The Engagement Effect – Users increase their involvement with the platform as the network expands. Successfully scaled products may find re-engaging lapsed users as powerful a growth driver as attracting new users.
- The Economic Effect – This growth engine kicks in as monetization and revenue per user increase. For example, the Economic Effect enables premium pricing due to the cost consumers would incur if they switched to another network...