The vast majority of network-effect businesses are very difficult to tackle, though, because:
1.) If it's already apparent that this is a viable business, then there's probably already an entrenched player, and the network effect serves to keep you out.
2.) If it's not already apparent that this is a viable business, then prospective users are like "Why should I bother?" and you never get the initial critical mass. After all, if the utility of the service grows with the square of the number of people, then the utility for the first person is zero and they have no reason to begin using the service.
It seems that most firms that overcame the initial network effect did so through a combination of blind luck or leveraging other assets. For example, YouTube's traffic hovered around zero until they got SlashDotted. EBay was blind luck - Pierre Omidyar figured he'd run an experiment on creating the perfect marketplace, and it turned out people sent him money. Digg used Kevin Rose's TechTV audience to seed the initial site. FictionAlley had the most popular HP fanfiction author as one of its founders, and she pulled her fanfiction off all other sites and hosted it exclusively on FictionAlley. Microsoft lucked out on the IBM deal and then leveraged that to gradually increase their monopoly over the PC industry.
That's a cop-out. If there is one thing we have learned from the current generation of dominant tech services, it's that network effects can be hugely powerful in this space. A business with a strong enough network effect supporting its main product or service can, evidently, screw up in almost any other respect and still survive with its network intact and its share price untroubled. And that remains true even if those screw-ups can have catastrophic effects on many little guys who were affected.
In my admittedly naive way I always hope that they will win out by having the better product. But to your point, I think the network effects are much, much, much stronger than anyone (including Theil, from which I first heard this concept) had ever anticipated.
So maybe the question is how does one beat the network effects that are so prevalent?
That's opportunity. The network is basically being born into the right circles, which is pretty much entirely luck. A few people do break in through sheer determination and/or a lucky break with some contacts.
Maybe more specifically, the value of all these networks lies in the network part. The tricky part is convincing the people that will use it to become part of the product.
Good or big? Commercial companies usually pick big, and history has proven that there is no way to achieve both big and good (MySpace and Facebook being the obvious candidates).
It's not network effects so much as the strength of the two-sided market they've created. Installing an app and registering is a lot of friction. On either side you'll probably bother doing so for no more than one or two services, which in most situations will cover most of whatever market exists.
But in general the answer is either having a disruptive strategy or else a huge amount of money to woo existing market participants. Most of us don't have either. That's the barrier to entry.
A) Get lucky.
B) Be the only choice.
C) Get a massive corporation to back you.
Otherwise you can't ride the network effect to the fullest.
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