Each and every product carries a different and unique network effect. Network effects are very complex, and almost every aspect of the product or business you have built has an influence on its network effect. Because of this, some products have both a global network effect–a type of network effect that can influence all users, no matter what country they are in–and local network effects, which are usually limited to just one country. It is useful to understand the type of network effects your product carries, because it can help when making strategic decisions for growth outside of the initial target market. Below are the elements that construct the network effect of your product.
Demographics – The demographics of your users can be a factor in having global or local network effects. For example, the majority of the guests that book on Airbnb come from outside of the United States. Even with just its initial users, Airbnb has a demographic that probably travels a lot. This means that any additional listings on Airbnb from any country will increase its value for the entire user base. Uber probably has a good portion of users that travel (especially those who have used Black Cars), so many of its active users are benefiting from its aggressiveness in expanding into different countries.
Interaction – Products that have very visual interactions can have a wide global reach. Instagram is enjoyed by people from many different countries and cultures. There are follows, commenting, and liking between users from different countries. Every new user and all new content generated by users makes the product much more enjoyable for Instagram’s global user base.
Content/Supply – Can the content or supply be enjoyed by others in other countries? Fashion and pop culture content may have a harder time traveling to other cultures. Food delivery and daily local deal sites are hard for international users to benefit from. However, something very unique, for which there are people globally that see value–like with the artwork listed on Artsy–would probably have strong global network effects.
Use Case – In terms of global network effects, does the use case translate to different cultures and countries? Hotel bookings, travel, photo sharing, and messaging are universal use cases in most countries. On the other hand, there are areas that could be massively adopted in one country but would require special tweaking in other countries due to local culture, economic situations, and infrastructure such as transportation, payment, and financial products.
Almost every founder, at some point in running his or her start-up, considers expand into other countries. There are many factors to consider, but having a global network effect can give you a big advantage in winning other markets. The competitors and clones of your start-up in other countries may be able to copy your product, but they won’t be able to copy the network effects your product carries.