Casey Winters on Network Effects
When a product/business gets better with more users using it.
I’m used to hearing network effects being mentioned in the context of social networks (WhatsApp, Facebook, Twitter etc). This podcast goes into network effects in a marketplace & SaaS context.
A marketplace has 2 actors, vaguely summarised here as providers/producers & consumers. A few examples:
| Product | Provider | Consumer |
|---|---|---|
| Uber Eats | Restaurant | Hungry human |
| Amazon | Shop/Vendor | Buyer |
| Spotify | Artist | Fan |
Different types of Network Effects
- Direct network effects: Every additional user makes the product better for all existing users. Most common. Social networks would fall in this category.
- Cross-site network effects: Adding a user on one side of the network makes it better for users on the other side of the network. Marketplaces & SaaS' network effects fall in this category.
- Data network effects: The quality of something improves as more data is collected. A good example of this is Spotify or Youtube’s music recommendation algorithms.