the net effect of network effects

The Net Effect ofNetwork EffectsThe Net Effect ofNetwork Effects

Can Social Computing Change the Game Within an Enterprise?Can Social Computing Change the Game Within an Enterprise?

What we’ll talk aboutWhat we’ll talk about

• Definition of network effects

• Web 2.0 and network effects

• Network effects and Enterprise 2.0

• Facebook, LinkedIn, etc.

• The value of “The Long Tail”

• Network effects and innovation

• What have we learned?

• Definition of network effects

• Web 2.0 and network effects

• Network effects and Enterprise 2.0

• Facebook, LinkedIn, etc.

• The value of “The Long Tail”

• Network effects and innovation

• What have we learned?

Definition

• Classic example is the telephone. The more people who own telephones, the more valuable the telephone is to each owner.

• This is commonly referred to as a “positive” network effect.

• The Network Effect is the effect one user of a good or service has on the value of that product to other people.

Definition

• Negative network effects can also occur, where more users make a product less valuable

• This is commonly referred to as “congestion”

• Over time, positive network effects can create a bandwagon effect as the network becomes more valuable and more people join, in a positive feedback loop.

Definition

• Another example – the fax machine

• Despite technology hardly changing, as well as the advent and growth of e-mail, cell phones, voicemail and Blackberries, fax machines persist.

• Suggested reasons

• Low prices

• Perceived security and legal needs (such as signature requirements)

Why Are Networks Important?

• Good networks create a collection of options– Distribution/reception of information and

knowledge– General exchanges with peers– Affiliation – establishing and maintaining

groups

David P. Reed – http://www.reed.com/gfn/docs/T3Talk.pdf

Reed's Law: 2N - N - 1Metcalfe's Law: N(N - 1)/2

Where N = The Number of participants

Number of Participants 20

Reed's Law

Number of Possible Sub-groups 1048555

Metcalfe's Law

Number of Possible Pair Connections 190

The Potency Potential

The Collaboration Curve

• Adding phones, faxes, etc. adds to effect, but they don’t perform better as a result

• People and institutions do

• Players of WoW take 150 hrs. to earn 1st 2M experience points

• Game gets harder, but in next 150 hrs. players learn four times faster

• Authors attribute this growth to the use of wikis, blogs, discussion forums, and numerous other sites and tools that exist outside of the game

http://blogs.harvardbusiness.org/bigshift/2009/04/introducing-the-collaboration.html

So . . . What are we really talking about?

• Collective Intelligence

• Wisdom of Crowds

• Crowd sourcing

• Social Tagging

• Social Bookmarking

• Awareness, sharing, and elevation

Web 2.0 and network effects

• World-Wide Web (www) originally intended by Berners-Lee to be more than one-way

• Web 2.0 has begun to realize that goal– Tim O’Reilly suggests harnessing collective intelligence is the

determining factor• Hyperlinks

• Google, eBay, Amazon

Network effects and Enterprise 2.0

• Will the widespread availability of Enterprise 2.0 design principles serve to “flatten” traditional enterprise governance?

• Can they act as a “force multiplier”?

• What role does trust play in a company’s success?

• Is the “Long Tail” accessible in contemporary organizations?

Facebook, LinkedIn, YouTube, Flickr, etc.

• Dare I say . . . Twitter?

Network effects and innovation

• Innovation is intertwined with strategy

• Both are iterative processes

• Innovation is useless without strategy

• Developing strategy is dependent on understanding what you’re capable of

• It’s also dependent on how well you can harness your enterprise’s network effects

• Open APIs (Application Programming Interface)

• Mashups (Combining 3rd party data and services through open APIs)

• Sensemaking (enabling collaboration, visualization, and casual interaction with data sources)

• User-contributed content – think Amazon.com, Netflix, Flickr

• User innovation – The use of Open APIs, Mashups, etc. in satisfying customer needs

Assisting innovation

What does an enterprise need to leverage the Network Effect?

• Just how difficult will it be?

• How important is culture?

• Will this be painful?

Thank You