Creating Network Effects

Internet users around the world have benefited from network effects where one internet user connects to another user. Eventually a bandwagon effect is created and therefore a number of users who create value.

Critical mass is therefore one of the main characteristics that drive a successful network effect. This can be created organically through value e.g. Del.ico.us, Flickr, Facebook, Myspace. Creating a useful platform for users to interact and frequently use would drive a successful network effect. Alternatively a network effect can be created through extrinsic rewards e.g. pay (advertising).


Lock-in
A lock-in benefits both users and customers taking "Cloud Computing" as an example. The more people that work within the cloud the more value it creates. This is supported by Metcalfes Law as it shows that "the value of information grows with the number of users using a service/product".

Lock-out
Lock-out can be described as the outcome for company b when company a is in a lock-in. Unfortunately once a competitor has a lock-in it is hard for competitors to try and instigate change to drive traffic from company a to company b. Being creative, price competitive or resource driven are three ways to turn lock-out into a free environment.

Firstly, creativity can influence a network of people. Companies often struggle with collaborating with users to find out what they want and really deliver value. Once you find out what the user wants innovation can be obtained through incremental changes that benefit users. In a network effect competition can drive innovation sticking with the theme Cloud Computing, if company A develop a very fast application but company B deliver more features users have an option of which to go to and therefore drive competition rather than become stagnant and inefficient.

Secondly, an organization that is price competitive can help deliver added value to users. Price skimming competitors to drive traffic e.g. £1.00 for unlimited storage vs Flickr £7.99 for unlimited storage. As long as features are relatively the same users are always going to be influenced by price.

Thridly, creating a resource driven website can also add value to users. E.g. Wiki or Wikipedia is driven through its relevance of content, alone it benefits through search engines therefore your likely to index higher with more relevant content but also with rich content comes rich network effects. E.g. Manuals - there is not one location that will help you should you need to consult a manual creating a resource pool with this information could drive a considerable amount of users. Yet it is important to note that resource driven must have a user network focus e.g. Wiki users create the site. Computer problem groups post problems but also solve problems.