Network effects are the key for building and growing a defensible business in the digital era. This presentation describes the 7 network effect playbooks from studying 170+ platform products.

1. The 7 playbooks for building
network effects
December 2016
Michael Vakulenko 1

2. Network effect is a phenomenon
whereby a product or service
becomes more valuable
when more people use it
Michael Vakulenko 2

3. The “halo effect” leads to
hyper-growth and strong retention
Michael Vakulenko 3
more valuable
more people

4. Very different products, but all
owe their success to network effects
Michael Vakulenko 4

5. How can you use
the power of network effects
to win with your startup?
Michael Vakulenko 5

6. “In God we trust, all others bring data”
W. Edwards Deming
Michael Vakulenko 6
170+ platform products 7 network effect playbooks
https://data.platform-hunt.com

7. #1: Users bring users
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Interaction
Platform
person
person
person
person
person
• Examples: Telephone,
Facebook, Instagram, Skype,
Houseparty, PayPal, Bitcoin
• Facilitate online interaction
between network
participants
• The interactions can take
form of a message, voice
call, image or value transfer
• Network reach (size) is the
main quality metric
• Identity plays critical role
serving as means of
addressing participants
Interaction Network

8. #2: Buyers bring sellers, sellers bring buyers
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Marketplace
buyer
buyer
buyer
buyer
buyer
seller
seller
seller
• Examples: eBay, AirBnB,
Kickstarter, Fiverr, Outdoorsy,
FreightOS, OurCrowd
• Enable transactions and
matching between sellers
and buyers
• The platform sets the
interaction rules and
facilitates discovery
• Market participants set the
prices
• Variety and matching
accuracy are the main
quality metrics of the
platform
Marketplace

9. Computing
Platform
user
software
developer
software
developer
software
developer
user
user
user
user
#3: Users bring developers, devs bring users
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• Examples: Windows, Android,
iOS, Alexa, Automatic
• Connect users of the
computing platform and 3rd
party developers
• Developers supply apps/
extensions making the
platform more valuable for
users
• The platform "owns" the user
• Usefulness of apps/extensions
is the main quality metric of
the platform
Computing Platform

10. #4: Service brings users, users bring providers
Michael Vakulenko 10
On-demand
Platform
user
service
provider
service
provider
service
provider
user
user
user
user
• Examples: Uber, Postmates,
Stuart, Doz, Heal
• Delivers end-to-end services
fulfilled by independent
service providers
• The platform integrates
matching, order, payment,
fulfillment, certification and
confirmation
• Price, quality and the
fulfillment processes are set
by the platform
• Availability of the service is
the main quality metric
On-demand Platform

11. #5: Users bring content, content brings users
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Crowdsourcing
Platform
person
person
person
person
person
• Examples: TripAdvisor,
Medium, Stack Overflow,
Glassdoor
• Crowdsource content in the
form of text, images or ratings
from a group of engaged
users and make this context
available to all users of the
platform
• The interaction is anchored in
topics, not users
• Variety of topics is the main
the main quality metric
Crowdsourcing Platform

12. #6: Users bring data, data brings users
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Data Harvesting
Platform
person
person
person
person
person
• Examples: Waze, OpenSignal,
InsideSales.com, Nexar, Tesla
Autopilot
• Crowdsource data through
usage of a service and use
the data to make the service
more valuable for users
• The data is generated by the
platform usage by all users
regardless of their willingness
to contribute
• Amount and quality of the
collected data is the main
quality metric of the platform
Data Harvesting Platform

13. #7: Partners brings users, users bring content
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Content
Distribution
Platform
user
content owner
user
user
user
user
content owner
content owner
partners
owning user
touch-points
• Examples: Google AdSense,
Outbrain, Millennial Media,
Smaato
• Connect owners of user
touch-points with content
owners
• User reach and accuracy of
content matching are the
main quality metrics
Content Distribution Platform

14. “Managing platforms is a human art”
Todd Lutwak, a16z
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http://allthingsd.com/20131021/managing-platforms-is-a-human-art/
With platforms, you are not managing software; you are managing
people. They may be the software developers writing a garage
opener app; they may be your Aunt Becky clearing out the
garage; or they may be brand advertisers who wants to reach the
software developer and Aunt Becky. Each segment has vastly
different motivations and needs to succeed on a platform.
“

15. Let’s talk!
@mvakulenko
15Michael Vakulenko