A network effect is when a product or service gains value as more people use it. Network effects are what make services like Facebook, Instagram, and Yelp so popular.
These products become almost indispensable once enough people use them. Unfortunately, many startups fail to create a network effect fast enough, and their businesses suffer as a result.
However, this does not have to be the end of your business. Below, you’ll find strategies for creating a network effect before your competitors do.
Use Freemium to Build a Network
One of the best ways to create a network effect is to use a freemium model. When you use this model, you make your product or service free, with the option to pay for premium features.
The benefit of a freemium model is that it enables you to grow your user base very quickly. You can achieve this by offering your product or service for free.
wNext, you can entice those users to pay for upgrades. When you use a freemium strategy, you create a network effect because your product gains more value as more people use it. This happens because freemium products are inherently social.
Be Exclusive
Another way to create a network effect is to make your product or service exclusive. This means you may use a selective process to give your product to only a select few people.
You can make your product exclusive in a couple of different ways. First, you can limit the number of people who have full access to your product. Alternatively, you can make your product available only to a certain type of person. This could be based on location, age, or any other number of factors.
For example, imagine that you’re building a dating app. If you’re trying to create a network effect, you should make your app exclusive by limiting it to college students.
Reinforce the Network Effect With User-generated Content
Another way to create a network effect with your product or service is to encourage user-generated content. With user-generated content, you encourage your users to share their experiences with your product or service.
wFor example, let’s say that you’re building a travel app. If you want to create a network effect, you should let your users upload pictures and reviews of the places that they’ve been to. By prompting your users to create this content, you can increase the value of your travel app by creating more relevant content.
Some apps even let their users create itineraries and share their travel experiences. These products become even more useful as the network grows. That’s because they become a dependable source of information that other app users can use to make informed travel decisions.
Leverage Existing Relationships
Another way to create a network effect is to leverage existing relationships. This means you can use your current relationships to make your product more appealing.
Let’s say that you’re launching a brand new product that most people don’t know about. In this scenario, you can leverage your current relationships to get more people to use your product.
For example, let’s say that you have a large number of connections on Instagram. If you want to create a network effect with your new product, you could ask your followers to try it out.
By leveraging your existing relationships, you make your product more appealing by increasing its visibility. This allows more people to discover your product, which in turn creates a network effect.
Show That Your Product is the Default Choice
Another way to create a network effect with your product is to make it the default choice. For example, let’s say that you’re creating a car insurance app. If you want to create a network effect, you can make your product the default choice by partnering with other apps.
One way to do this is by partnering with ride-sharing apps like Lyft and Uber. By partnering with car ride-sharing apps, you can make your car insurance app the default choice for drivers. By making your car insurance app the default choice, you increase its visibility and make it more likely that more people will use your product or service.
When you make your product the default choice, you create a network effect because it gains more value as more people use it.
Give Away Free Samples
Another way to create a network effect with your product or service is to give away free samples. This is similar to the freemium model, but instead of offering the full product for free, you give away a sample.
By giving away a sample of your product or service, you show people what you have to offer. This helps you create a network effect because it entices people to visit your site or download your app.
By giving away free samples, you can gain more users and create a network effect. However, you should keep in mind that this strategy only works if you have enough capital to support the product.
Bottom Line
A network effect is when a product or service gains more value as more people use it. To create a network effect, you can make your product exclusive, encourage user-generated content, or make your product the default choice.
Now that you know what a network effect is, you can use these strategies to create a network effect for your product.
