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The 7 playbooks for building network effects

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.

The 7 playbooks for building network effects

  1. 1. The 7 playbooks for building network effects December 2016 Michael Vakulenko 1
  2. 2. Network effect is a phenomenon whereby a product or service becomes more valuable when more people use it Michael Vakulenko 2
  3. 3. The “halo effect” leads to hyper-growth and strong retention Michael Vakulenko 3 more valuable more people
  4. 4. Very different products, but all owe their success to network effects Michael Vakulenko 4
  5. 5. How can you use the power of network effects to win with your startup? Michael Vakulenko 5
  6. 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. 7. #1: Users bring users Michael Vakulenko 7 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. 8. #2: Buyers bring sellers, sellers bring buyers Michael Vakulenko 8 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. 9. Computing Platform user software developer software developer software developer user user user user #3: Users bring developers, devs bring users Michael Vakulenko 9 •  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. 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. 11. #5: Users bring content, content brings users Michael Vakulenko 11 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. 12. #6: Users bring data, data brings users Michael Vakulenko 12 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. 13. #7: Partners brings users, users bring content Michael Vakulenko 13 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. 14. “Managing platforms is a human art” Todd Lutwak, a16z Michael Vakulenko 14 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. 15. Let’s talk! @mvakulenko 15Michael Vakulenko

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