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Article by James Currier highlights the importance of network effects in building valuable Startups.
This is a must-read and a good look at where things are headed as networks and higher-touch business models converge.
Very cool! My favorite insight:
"People matter. With complex services, each client is unique, and the professional they get matters"
Traditional social networks are becoming generalist "distribution platforms", these niche market networks are the logical next step.
Market networks are an extremely interesting category and are tricky startups to build. Axial, where I worked before, is a market network with a n-sided network model. The biggest difficulty I saw working there was the internal politics around which part of the network was most important to growing the rest of the network.
When you have an n-sided network, you have to focus on a smaller part of the whole market first. Start with a two sided network and add sides as the whole grows. Then you have to play the balancing game to get the rest of the network to grow at the right proportions to make the network effects relevant for a large part of the network. Otherwise you end up with a lumpy network that is only relevant for a few of the n-sides at a time.
It's a fun, difficult problem to solve. Very high value if you can do it. Angellist is a great example of a market that has figured out how to go from two sided to n-sided while balancing the network effects well. It'll be interesting to see if other n-sided networks can keep their growth from getting too lumpy.
Absolutely right. My favorite, which has been at this since 2006, is Spiceworks in SMB IT. Spiceworks IT app anchors and attracts their 6 million user network, first monetized via vendor ads. Now they've opened a marketplace for add-ons and new stuff among their community.
I use the term 'crowd catalyst' to describe what the author is calling 'market network'. Without the anchor app or service being successfully used by the crowd or network members, the community doesn't catalyze.
Additionally the author doesn't really deal with the issue of the evolution of dominant social networks into aggregations of niche 'market networks'. With 'buy bottons', API-enabled apps, and 'shoppable content' moving mainstream inside and on top of the leading social networks, some of the big fish will be able to capitalize on this idea as an augmentation of their existing biz.
This idea also works well when the people in the market network are the 'product'. E.G. with it's 'compatibility' surveys and automated software based matching model, you could call eHarmony a market network.
Couldn't agree more that market networks are the future—they really do provide so much value.
This is amazing thanks Sean!!
Useful, insightful and inspiring piece. Thanks Sean!
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