3 ways to build network effect for your business, inspired by Skype
During my final preparation for my upcoming speech about Web 2.0, I often realize ideas and draw conclusions that were not apparent to me in the early stages of my research and analysis. In the last 3 months since I’ve started this project, quite a few changes have taken place on the web that had me reevaluate the exemplars I’ve chosen to demonstrate the various Web 2.0 principles.
One of my all-time favorite services that is going to have a prominent mention in my speech is the world-class VoIP telephony service known as Skype. What’s odd about using Skype as an exemplar in this presentation is that it’s really not a web-based service to start with. However, the principle I’m highlighting today is really not specific to Web 2.0; it’s in fact applicable to lots of products and services on or off the web.
Many people refer to this principle as the network effect, which is:
A characteristic that causes a good or service to have a value to a potential customer depending on the number of customers already owning that good or using that service.
Furthermore, some people talk about reaching the critical mass which is the turning point where each subsequent addition of new customer adds a valuable point to the existing customers (I’m calling them ‘Subscribers’ in my speech).
A fine point to remember about critical mass is that once you hit that stage, people will perceive the value your product or service has to offer to be equal or greater than the price they’re paying for it (also known as utility:price ratio). Practically, this means that after this point, the major factor attracting new customers to you will be based on the fact that alot of other customers have already signed up for it.
Here is a snapshot of a slide that’s part of my treatment of this principle:
So how did Skype reach its phenomenal success and wide user adoption? In other words, how was it able to hit the critical mass and beyond?
The secret is in employing 3 killer builders of network effect, the last of which to join the rest only about a week ago. Let’s explore them in details.
