Network effect vs Platform effect, how to choose the main value engine?

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Guidance: Due to the different characteristics of the network effect and platform effect suitable for the growth of the environment is also a big difference.

Network effect is an attribute that makes the value of a product to a new user affected by the number of users owning the product. In other words, the number of users is an important consideration for the next user. For example, if only a few people use a fax machine, most of them will not consider buying. And when more and more friends use Whatsapp/line/wechat, it will bring more users to join.

The platform effect is also called bi-directional network, which is provided by two different user groups to the other network effect. For example, the more sellers the auction site, the greater the value of the single buyer, and vice versa.

Entrepreneurs in the web industry should be aware of these two effects, but I find that most CEOs do not think about how they can use them to build long-term, lasting value for their business models. Today's article, let us take a moment to explore the two, as well as the use of the case.

Network effect vs. platform effect

First, the network effect and platform effect are often mutually exclusive. The network effect represents the value provided by the same type of user, while the platform effect represents the value provided by another class of users. Therefore, in the service of receptacle multiplying, the more the same type of user, the higher the value, and the emergence of another type of user will reduce its value concentration-the more friends use line, the higher its value, but each time you receive another type of user's advertising, fraud messages, Will give us a discount on the service.

In contrast, the more users of the same type are on the Platform multiplying platform, the lower the value will be-when there are many buyers on the auction site competing with us for the same product, the price is rising, which makes us feel miserable rather than happy.

Suitable applications

Because of the different characteristics, these two effects are suitable for the growth of the environment varies greatly.

The value of the network effect is generated by the same type of user, the more the user value is higher, so it is suitable for low physical cost, and the value of low copy cost produces behavior. For example, communication, sharing words, pictures, photos, movies, these user behavior in the online world marginal cost is almost zero, so community services are widely used to generate network effects. And although the physical cost is zero, but the opportunity cost of these user behaviors is often very high, and the more they can attract users to participate in the high opportunity cost of community services, so the more network value can be generated ─instagram originally more than the usual camera App filter function, in fact, increased the sharing of photos with the steps and opportunity costs , but the quality of the photos produced by applying filters has been greatly enhanced, which has attracted many users to spend more time making photos, thereby creating a valuable user network.

The value of the platform effect is generated by another type of user, the more sellers, the higher the value for the buyer, so it is appropriate to find the right side of the exchange of value, that is, the "trading" situation, such as auction, shop Street, friends, and even order restaurants, to find the decoration master, are the platform effect can play a place.

Key quantity and operating lever

Because the value of the generation depends on other users, both the network effect and platform effect, the initial need to reach the critical user scale, can let the value of the provision of more than a certain proportion of users to enter the threshold, from the user can enter the forward loop.

The so-called critical quantity must be considered at two levels. The first is a critical number for a single user, which is the number of other users to see when they want to join the service. For a single user, the absolute number of users on the entire service is not always critical, and how many other users he cares about are more important. In addition, if you want to maintain the stickiness of the user after joining, the number of other users he cares about must grow over time to counteract the resilience of the users who are concerned.

On the other hand, for the new ventures operating these services, when the number of users reaches a critical scale, the marginal benefits of the total sum will accelerate growth, allowing the business model to enter the forward cycle of the high operating lever (keyboard-based leverage), which is the benefit of the network and platform effect.

The creation of network effect

So creating a network or platform effect is an important way for a new company with scarce resources to get leverage. On the creation of network effects, I think there are the following points of thought:

1. Find a high concentration of early small target groups, such as: Facebook's rise to Harvard campus, PTT's great Taiwanese capital

2. Provide early user killer application, lower entry threshold

3. Carefully designed to help users form a high-quality network process, such as: Friend referral, mobile phone/FB list Import process

4. Reduce the interaction, create the threshold, such as: line stickers, filters, point praise

5. Carefully designed content sorting, screening methods to ensure that users get the maximum reading value

6. The gradual expansion of user groups in recognition and maintenance of high viscosity

7. There is no business model before critical quantity, so it is best to grow with "recommendation engine"

8. Regular revision to maintain freshness

9. Help users find and meet new people on the Internet

10. Appropriate gameplay to increase stickiness

11. Everything is Social UB, we must design rules and processes for human nature

12. The creation of platform effect

Relative to the creation of the platform effect, I think there are the following points of thought:

1. The purpose of the platform is to trade, so the early goal of creating a successful transaction between the trader and the buyer, and the need for a creative team to act on one side

2. Platform operators often need to absorb costs themselves early to reduce the entry threshold of traders

3. The way of growth is usually the buyer → seller → Buyer's recycling, that is, the so-called warping plate growth

4. In the early years, it was often necessary to manually attract buyers with a handful of star goods, or to manually attract sellers by a small number of large models

5. Since the transaction is the primary value of the platform, the transaction again, that is, the repurchase is the real manifestation of the platform effect

6. To produce a second trade, there must be a good Retention Marketing strategy

7. Buyers Retention include more goods, member operations, loyalty plans, etc. that are also of interest to buyers

8. Sellers Retention include guiding more buyers, providing data, kickbacks, etc.

9. The main growth power of the platform is the active (advertisement) user who gets the high Retention

Google's upturned board

Google's early search engine, the seller of its own information, provided the buyer of information, the search for great value for users, and thus attracted a large number of users aboard the platform. Then they launched AdWords to let the buyer click on a DIY way to buy the keyword ads. Because the search user already has a considerable number, so AdWords is a DIY model, but across the advertiser's management cost threshold, but also for Google to create a working lever.

Then, getting the advertising budget, Google developed AdSense Web ads to attract site owners to join, but also let AdWords advertisers can be similar to the management costs, a collection of more clicks. Finally, as more and more advertisers and web owners rely on Google as a media platform for advertising, they further launch ad Exchange, absorbing more click-buying and sellers on the platform.

Above, hopefully today's article will help you think about your business model and should be based on the network or platform effect as the main value engine.