The network effect enhances the core value of a service to the customer by getting their peers to join. It means the thing you’re creating has a built-in crucial component that depends on a growing or large network to make it awesome.
- If I tell my friend to watch this show, we can talk about this show and I’ll enjoy it more
- If I take a friend to this theater, I’ll have more fun
- If my friend plays this multiplayer game with me, it will be more enjoyable
- If my friend attends this zoom, we can battle in the comments
Giving a gift or a discount is not the network effect, it’s a referral program incentive and it’s kinda expensive for you (managing the referrals, time and shipping and stuff). A gift like “tell a friend, get a free watch” does not enhance the core value of the service you’re offering.
Some different ways to get a customer to share what you’re doing…
natural network effect (best) facebook : “you joined to connect with friends. tell your friends, get more connection”
artificial network effect (good) dropbox : “you joined to get storage. tell your friends, we’ll give you more storage”
referral program (not super) “you joined to get a funny show, tell your friends and we’ll give you a DVD”
asking (least effective, but free) “you joined for golfing tips. tell your friends who need golfing tips”
The opposite of the network effect
It’s possible to work against the network effect.
If you have an underground project that attracts people that love the underground, they might tell a few in the underground, but they will not proudly announce it because they want to preserve it.
If you do a show that asks for requests from the audience, you can have an unlimited audience size and you can only take one or two requests, I’m not gonna tell my friends because I want my request to be heard.