How tech’s giants drive growth with network effects - Deepstash

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How tech giants get so big

Andrew Chen writes in his book, The Cold Start Problem: Using Network Effects to Scale Your Product, how companies like Google, Uber, Dropbox, and Tinder use network effects to break through the competition and reach viral growth.

Network effects describe how the value of a product or service depends on how many users engage with it. The more users engage, the more desirable it becomes.


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The key is to connect people

Many Silicon Valley startups have become so big because their products connect people. Products like Zoom, Dropbox, GitHub, even Microsoft Office are all different versions of this.

Network effects have been around for a long time. Theodore Veil, the chairman of aT&T, stated in 1905 that the phone is useless. Its only value lies in letting you connect with people. 

It means that you can build a product with all the right features, but if you don't build the network alongside it that lets people connect in the right way, if your coworker's don't use it, your product will not be successful.


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Scaling a minimum viable community

If two companies both build a note-taking app for personal use, it is one product vs another. But if it's collaboration, whenever one company wins a user, they possibly win their whole sphere of influence as well.


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Understanding context

Networks have different underlying structures. The growth of companies like Uber is bound by geography. They are very successful in San Francisco, but that does not help them to gain popularity in London. Companies like Airbnb have a global network effect. A B2B example would be Zoom vs Slack. Zoom is used across organizations, but Slack is within an organisation.

Ask yourself what your network looks like. Then consider how many users you need to make the network valuable.


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Don’t copy-paste other people’s features into your products

Design your network features thoughtfully. You need to understand what you think your network will look like first. Is it a local network? Or a network more like marketplace companies like eBay? 

Decide on how many users you need before the network is valuable. Zoom might be useful with two or three people, Slack with five or ten people in a team. Something like Airbnb or Uber needs hundreds of network participants in a hyperlocal region to work.


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Following the S curve

Products powered by network effects often follow an S curve. When growth slows down, you will need to find a new product.

The Cold Start Theory stages:

  1. The problem. How do you get a team to use your product and get excited?
  2. The tipping point. To get momentum, figure out how to get one team excited about your product so that they spread it to others.
  3. Escape velocity. Consider how to build your product to spread inside of a company automatically.
  4. The ceiling. Growth eventually slows down, and you hit saturation.
  5. The sustainable moat. When everyone has network effects, how will you compete?


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Hitting the ceiling

First, you have to figure out the new network product that drives the rest forward. Big companies can easily get millions of people to a product launch, even if it is a bad product. But they may discover that it won’t stick over time. 

The solution is to get small groups of people excited about your product, then move from network to network.


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Textile designer

How to get past the "cold start problem" of zero users and build the networks that make your product successful.

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