Activating Network Effects

Network effects are the second step in building effective decision-making and convincing others to support particular business. In her article Why Do People Use Social Media?, Melissa Leiter claims that the importance of activating network effects derives from the innate ability of humans – to communicate connect with each other and to be part of the group. The focal point is based on the fact that people need to exchange and comprehend information about their thoughts and activities. In the context of Web 2.0, there are also two sides of using social networking: on the one hand,  you enjoy sharing the information whenever and wherever you want and, on the other hand, by looking at updates of your relatives or friends you are informed about recent events in your friends’ or relatives’ life. The article suggests that modern digital communication is the prototype of life communication that previous generations experienced. Instead of walking down the street to have the allegiance with a particular group, modern society has the possibility of joining such micro groups online.

Network Effects Defined

Network Effect can be defined as “an environment where an increase in adoption or usage creates more value for all participants in a social community or network” (Web2group, n.d.). Such network effect is generally considered as positive. Negative network effect occurs when a network reaches an inflection point. There are several types of network effects:

Direct Effect ( the value grows if more people use it);

indirect effect (the increase of product usage boosts production of another product the value of which is increasing; consequently the value of original product increases as well);

cross-networking effect (occurs if the grow of usage by one group increases the value of a complementary product in another group);

local effect ( user depends on decisions of the “local” group of consumers).

The example of Google success at early stages over Overture/GoTo is a classic example how the correct choice of network-effects strategies made the company second to none in its niche.

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Freeletics is a recently developed online service of high-intensity workouts. It provides people with free access to simple set of exercises which can be done anywhere and at any time. For premium users and at reasonable price the service offers individually adapted training and nutrition plans. The ae of the platform is quite small but the success of company is already amazing. The growing popularity of Freeletics is predominantly based on choosing correct network-effects strategies. In general, the value of the service lies in its ability of socialization. After a person completes workout, he/she is able to compare results with other athletes, achieve motivational awards etc.

Direct effect

The amount of users in Freeletics is constantly increasing. Currently there are around 1 million users in Facebook. More detailed information is not provided.

Cross-reference effect

If the amount of customers that use free services increases, than surely the amount of users who buy premium services also grows.

Local effect

There are many users who group themselves via social networks to do the training together or show results.

References

Freeletics. (2015). Fireeletics website. Retrieved from “https://www.freeletics.com/en

Shuen, A. (2008) Web 2.0:Strategy guide. Sebastopol, CA: O’Reilly Media

Web2group. (N.d.). Strategies –active network effects.  Retrieved from http://web2group.wikispaces.com/Strategies+-+Activate+Network+Effects

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One thought on “Activating Network Effects

  1. Nice post, didn’t even know this existed but I will definatly check it out. I’m guessing this is a fairly new service? Do you know if there is more on how they more specifcally harness the network effects?

    Like

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