Network Effects

One of the easily overlooked features of cloud-based solutions is the potential for network effects.  Because a cloud (especially SaaS) vendor has some metadata about their customers, there is the potential to learn something interesting by analyzing that data.  Now, every superpower can be used for good or for evil, so let’s be clear about what I am proposing.  Evil usage is to try to extract personal information about your clients, and use it against them, or sell it to a random third-party without their permission.  Good usage is to use that data to make your service better for your customers.  The key to network effects is that the more users you have, the better the solution becomes for the users.  These benefits are potentially very valuable, and any solution that ignores them will probably be surpassed by a competitor that uses them well.

Here are some quick ideas on how to create network effects in your cloud-based solution.

  1. Best Practices: compare one user’s usage patterns to the average of all users, or of users in a similar class.  Financial ratios are a great example of this kind of thing, but your users probably have some industry / application specific metrics.  Everyone likes to know how they are doing compared to everyone else.
  2. Common Interests: based on usage or user selection, you can recommend people or things that a user might like, based on what other, similar users like.  Think about the “you might also like” feature in the Amazon book store.
  3. Busy / Free / Location: Which other users are available or nearby right now?  Obviously you want to use this in an appropriate way – not every solution should incorporate a “stalker” feature.  But if users want to communicate or meet with other users, you may be able to help with this.
  4. Viral Features: If users might want to pass on certain information, e.g. quotes, screen shots, photos, links, high-scores, etc., make it easy for them to do this.  You definitely want to make it easy for existing users to invite new users, and make it easy for the new users to get basic functionality. (remember how limited email was when half your friends didn’t have it?)
  5. Crowd sourcing: Let users tag or rate things to determine relevancy (e.g. once 10% of your users tag something as spam, you can automatically block it from all the rest), or answer questions to build a knowledge base.
  6. Social: Maybe your customers will be more interested in certain features or content if they know that other people are using them too – these could be their friends, or they could be influencers in the industry.  You can also help people discover hidden influencers, or hidden relationships.  Linked-In does this for your second-level network.
  7. Feedback: this is only sort-of a network effect, but it gets ignored by almost every business.  Every customer assumes that if you have lots of other customers, you should know a lot about what those customers want, and how they use your product. Most companies have no idea – they are only slightly better informed than any individual user.  If you make it easy for a customer to provide feedback, then 1000 customers can easily translate into 1000 real data points about preferences.

This is a place where first mover advantage can actually be defensible – if you have a bigger database of relevant recommendations than the new start-up competitor, they will have a hard time catching up.


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