What Is a Network Effect?

There is an inherent need for interconnection in information products, because the purpose of producing and using them is to better collect and exchange information.

Network effect

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Let's look at an example of a fax machine. The prototype of the fax machine appeared in the 1930s. By the 1950s, the makers of fax machines were aiming for some

• How to induce "network effects"

The entity that induces the network effect, your network needs to be composed of the following content

Content (blogs / wikis)

People (Social Networks), producers of content

Activity groups (eg Katrinalist) to build relationships between people and content

Mechanisms Inducing Network Effects

Accessible participation, users can easily contribute content

Content can be effectively linked

User-contributed data sources must be unique

Small pieces of data can be freely combined and recognized by the system, for example: Microformat

Use your application as a platform

Content can be output synchronously (RSS)

Establish a looped feedback mechanism

The value of induced network effects

Community building and growth

Inspiring users

Cultivation / harvest innovation

Attention (e.g. advertising)

If everyone can do it in action and their thoughts can be achieved, then this division can quickly and even rampantly spread in the existing business and social structure! Therefore, many people are full of interest, and they will often talk about the technical advantages of Web2.0 on the Internet and in their organizations.

This further explains that venture capitalists, entrepreneurs and companies are vying to enter the game before the leaders of traditional industries have yet to enter. In my own words, this is just the beginning, and those industries that do not make effective use of Web network effects will go through a very difficult period.

Enabling everyone to do this is actually less realistic and ironic. Web2.0 is a truly equal force. Although it needs some kind of core competitiveness (which can keep you growing), as long as anyone with innovative ideas and excellent technology can open up the one with 1 billion listeners door.

• Network effects and network negative effects

The network effect is that the value of a network is directly proportional to the number of nodes in the network. A typical example is the telephone. The value of the telephone network can only be fully realized if there are more people installing telephones. Many people are full of complaints about QQ, but they can't put up this little IM software, because that is almost equal to the online social relationship of a Chinese netizen. Those who are concerned about network effects may ignore the negative effects of the network.

The greater the number of nodes in a network, the greater the risk that it will be abused and the greater the loss it will cause. A typical example is a computer virus. The Windows platform constitutes a huge personal computer network. While obtaining various conveniences, people also have to bear the huge losses caused by the virus. Many people began to switch from IE to Firefox, not because Firefox is faster or more stable, but simply because various hooligan behaviors against IE have been unpredictable.

In addition, the larger the network, the greater the maintenance cost of the network. Take everyone's social circle as an example. Of course, expanding an individual's social network can bring more potential opportunities, but at the same time, maintaining this network also requires more effort. People of different ages and professions have different needs for social networks.

Students have not yet established extensive social relationships, and they have a lot of time to consume, so their demand is to expand the network almost indiscriminately. I think this is the key to the success of QQ and MySpace. But in a business crowd, they already have a certain social network. The value of time is often higher than the value brought by expanding the network. They just want to manage and maintain the network more effectively, rather than let it be unlimited. Swell.

The size of a network does not necessarily directly affect the value judgment of the user on the network. No matter how big the telephone network is, the parts you can use are usually only a few hundred people on the phonebook; no matter how many QQ users, the daily contact is only a few hundred people on the contact list. Of course, the advantage of a large network is that your contacts usually exist "naturally" there, and you don't need to laboriously introduce them to a new network. But if all your contacts have entered a new network, the value of this network, no matter how small, is not much less than that of a large network.

• Direct and indirect network effects?

Network effects can be divided into two types: "direct network effects" and "indirect network effects". Direct network effect refers to the interdependence between consumers in the same market, that is, consumers using the same product can directly increase the utility of other consumers, such as telephone, fax, and the Internet.

The indirect network effect mainly results from the technical complementarity between the basic product and the auxiliary product. This complementarity leads to the interdependence in product demand, that is, the value of a user's use of a product depends on the number of complementary products of the product. And quality, the more complementary a product is, the greater the market demand for that product.

The existence of network effects, especially the "direct network effects" that have not been marketized, have given rise to externalities, that is, consumers' consumption of networked products will bring "positive externalities" to other consumers. When such positive externalities are not compensated or encouraged, the number of optimal consumers of network products is lower than the actual number of consumers, which leads to "market failure".