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Network Effects Vs Viral Effects: Understanding the Difference

03 Dec 2021
7 mins

The terms “network effects” and “viral effects” are often used interchangeably in marketing. While the two concepts are vital, they are not the same, and we’d like to clear the confusion between them.

Network effects add value and defensibility to a product. On the other hand, viral effects increase the speed of adoption to a particular product or service.

In this post, we’ll define network and viral effects, clarify the key differences between the two and explain why investors are always so interested in a product with true network effects at its core.

What Are Network Effects?

Network effects happen when a product becomes more valuable as many people use it. The higher the number of buyers, sellers or users a product has, the higher the network effect- and the higher the value the product continues to offer.

The best and most obvious example of network effects is the internet. Initially, very few people used the internet because they didn’t know its value. It was basically limited to scientists and researchers.

Over time, people started to make more and more use of the internet, making it more valuable by creating more content and online services. The creation of more websites further increased the use of the internet, and that’s why today, the use of the internet is high and valuable. So, we can say the internet has a strong network effect because of the increased number of valuable users.

Examples of Network Effects

Today, the biggest and most iconic companies in the world can largely attribute growth and success to network effects. Here are a few obvious examples:

  • Social media platforms such as Facebook, Twitter, LinkedIn and Instagram.
  • Ecommerce firms such as Amazon, Alibaba, eBay and Etsy.
  • Rideshare firms such as Uber and Lyft.
  • Delivery firms such as Deliveroo and Just Eat.

All these firms have one thing in common: they continue to increase the value of their offerings as their customer base increases.

Take Facebook, Instagram and Twitter, for example. As more and more users sign-up, the content creation in the platforms becomes more diverse and rich, making the media stronger and more valuable.

The same case applies to the ecommerce websites and rideshare firms, which have continued to offer better services following the growth of their customer base.

What Are Viral Effects?

You have probably heard of the phrase “it went viral”, which means something has been circulated rapidly and widely from one internet user to another. So, in essence, a viral effect describes the ability of a product or a business to acquire new customers – it goes viral.

A viral effect mostly happens when your existing customers acquire new customers (for free) due to a high degree of consumer confidence, brought about by a viral loop.

A viral effect grows through a viral loop, which generally consists of the following steps:

  1. An individual discovers a product or services, tries and likes it
  2. That same individual becomes an advocate, spreading the word to others
  3. A connection purchases the product or service; they like it and share with more people … and so on ….

Your viral loop will become better and stronger as more and more individuals continue to discover and share your products or services.

In some cases, a viral effect can be influenced by network effects, but not always. A product can become viral even when it does not have a network effect.

Viral loops are common in social platforms such as LinkedIn, Twitter and TikTok. Some firms focus solely on virality, too, without much emphasis on network effects.

If you want a product or service to go viral, you must focus on the practical value first.

Viral Brands and Products – Key Attributes

If you want a product or service to go viral, you must focus on the practical value first; and If you want to assess the practical value of your product, ask yourself the question. Does it pass “the toothbrush test “? I.e. will this product get used more than once a day and does it make your life better? According to David Gelles of the New York Times, Google’s Co-Founder Larry Page uses this simple theory to decide whether or not he should make an investment or acquire a new product.

After this, products which “go viral” tend to have the following attributes:

They are universally accessible

A great example of this is Cards Against Humanity, who from day 1, offered users the opportunity to “Steal the game”, with a FREE download of the entire game on their website.

A highly engaged social media following

TikTok has quickly become one of the top social media channels where we see viral effects taking place. Some of the top brands in the world are now leveraging TikTok users to both launch and accelerate the reach of their product or brand.

Their promotional content is remarkable

Viral brands often gain the most traction with truly remarkable content, and you need to look no further than Dollar Shave Club, who’s promotional YouTube video is one of the most successful in the history of the channel, racking up 27+ Million views.

Network Effects Vs Viral Effects: The Key Differences 

So in summary, here are the key differences between network and viral effects:

  • Network effects are value-oriented, while viral effects are growth-oriented
  • Network effects are long-lasting, viral effects are short-lived
  • Network effects focus on keeping/retaining customers; viral effects arouse on attracting new customers
  • Network effects are multidimensional, and viral effects are unidirectional
  • Network effects have a value payoff, and viral effects have an emotional payoff

How Viral Effects Can Support Network Effects 

Both viral and network effects are valuable in a business. While network effects offer defensibility to a company, the truth is that some viral loops can support network effects.

Since viral loops aim at attracting new clients to a product or service, you can use them to extend your customer base. And if you offer valuable benefits, your newly acquired customers will always stick in your business, which translates to stronger network effects.

You should not neglect the viral loops as you focus on creating more vital network rules. A tremendous viral loop can increase the awareness of your business and improve its brand.

The key is finding a balance but focusing more on offering valuable services and products to strengthen both your viral and network effects.

Building Network Effects into Your Product Provides More Defensibility and Creates More Value 

The current business world is highly competitive, so it’s vital to improve the defensibility of your business. By defensibility, we mean that you grow your business by providing valuable services, and you stay on top to outperform your competitors.

Building network effects creates more defensibility to your products when compared to the viral impacts. This is for the obvious reason that network effects are value-based, so your customers won’t quickly leave for competitors when they are getting the value they need from your product or service.

Here are two impressive examples of how value can achieve defensibility:

When your business has strong network effects (like in these social media platforms), the value and returns increase.

Alongside brandscale and embedding; network effects have grown to be the primary form of defence for companies operating in the digital world. Big platforms like Amazon, Google, Oracle, Alibaba, Craigslist, and much more have all achieved their defensibility through network effects.

That’s why Investors are always more interested in products with network effects at their core.

If your business is still young, think about how your products or services can add value to the users. That way, you will start your journey to true defensibility.

Would you like to move forward faster with your product marketing strategy? Our team will advise you on planning and implementing your strategy for growth. Contact us to find out more.

Tagged in Strategy

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