Discover more from Kevan Lee
414. Network Effects 🔥
The top five channels where NFX are thriving (and where marketers can invest)
Hi there 👋
Question for you: How has AI changed the way you approach your content strategy? I’m thinking through new ways to resource a content plan and wondering how many people to put on the problem vs. which paid tier of Jasper.ai to purchase. :) Just kidding, it’s not that black-and-white, but I am curious how people are implementing generative writing tools into their content workflows. Any advice would be immensely helpful!
Wishing you a great week ahead,
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How network effects can influence your marketing strategy
Whenever I think of network effects, I think of the abbreviation NFX, which makes me think of the 1980s punk rock band NOFX, which sends me down a Spotify rabbit hole and I forget why I was thinking about network effects in the first place.
Shame on me because network effects are worth thinking about as you put together your marketing strategy!
Network effects happen when the value of a product increases as the number of users increases.
You see this happen in products like social media. For instance, Pinterest gets more valuable as a product when more users pin more content. Pretty much any user-generated content product needs network effects to survive. But you’re also seeing this more and more in data-driven product experiences where more usage leads to more data, which can then be used to improve the user experience. At Buffer, this might look like social media recommendations based on high-performing content from the aggregate of Buffer users, or at Oyster this might mean country-specific hiring flows based on past experiences of customers hiring in those countries.
Here’s an example from Spotify (and a good case for freemium, too):
Many products leverage different types of network effects to create additional value for users. Free products allow you to build a large network of users to increase that value proposition even if they are not paying. In this way, a free product can increase your product's value to paid users. Spotify is a common example here. A large portion of Spotify's value prop is their amazing ability to help you discover new music. Discovery is driven by a data network effect that is fed by their free users. This data network effect has multiple other effects: Increased retention of both free and paid, increased virality, and increased monetization.
(It should be noted that NFX is not the same as virality. Virality is when each new user brings you another user. NFX is when each new user adds even more value to your product, not necessarily bringing you more users themselves.)
OK, but what does this have to do with marketing strategy?
It’s true that in a lot of ways network effects are more relevant for business and product strategy as you design the way your product delivers value to users. (Even then, shouldn’t marketing be at the table for product strategy discussions? I vote yes.) Marketers of a product with built-in network effects can design strategies to drive mass adoption — like the freemium example above (pricing and packaging) or through affiliate or referrals (partner marketing).
But where I find network effects to be really interesting is in observing the types of channels that are doing network effects right — and then jumping in head first to market my stuff there.
Let’s take this HubSpot definition of NFX:
A network effect is when new, additional users signing up for a product or service increases its value and utility for current and future users. If a product or service has a network effect, its value and utility will increase as its user base grows.
And let’s modify it for a marketing channel investment:
If a product or service has a network effect, its value and utility will increase as it adds more users. More users equals more eyeballs. And more eyeballs is one of the key considerations for marketing channel investment! (provided they are the right eyeballs)
With this in mind, here are five of the top places where network effects are thriving and where marketers should turn their attention as you consider where to invest your time and resources.
Substack has cracked the network effects code in multiple ways. Most obviously, it has the power of user-generated content, which makes the ecosystem of Substack newsletters more and more enticing. But it has also engineered a feature set that creates more value for its two-sided marketplace of readers and writers:
Recommendations. These help new publications grow quickly, and they signal quality, relevant content to readers
@mentions of writers, readers, and newsletters. These help connect the dots across Substack’s growing content base
Q&A — an interactive feature, like a Reddit AMA
A brand new Notes feed, kind of like Twitter tbh (the two are feuding, in case you hadn’t heard)
What all this means for marketers is that Substack has quickly become a must-consider destination for a way that you can distribute your content.
Think: the 2023 version of 2017 Medium.
Probably deserving of the #1 spot on this list since it has 1.5 billion users worldwide, right? TikTok is running the NFX playbook of past social media behemoths like Facebook and Instagram: The more users that come to TikTok, the better TikTok is as a product (provided its algorithm keeps showing you the right stuff).
The one caveat worth mentioning if you’re considering TikTok for marketing is whether TikTok will get banned. Maybe don’t put an entire creative team behind any new TikTok initiatives just yet, until we can figure out the bluster around banning.
3. IRL events
Events are not a product (obviously), but they are a wonderful example of the original power of network effects: more and more people getting together, making for a more and more valuable experience. Particularly post-pandemic, we have seen a greater appetite for in-person experiences, which has obviously meant more attendance at each event. But that’s not all! The discourse around events has ratcheted up, too, so that you’re not just benefitting from the offline increase in attendance but you have a sea of online conversation as well: pre-event amplification, live-sharing the event experience, and post-event followups on blogs, social, podcast, you name it.
4. Canva, Unsplash, Figma
I’ll call this one the marketplace effect.
If I had a dollar for every TikTok I see about how to quit your job and make $1,000s each month selling Canva templates, I would have enough money that I wouldn’t need to sell Canva templates. These videos are everywhere because Canva seems to be everywhere. It has absolutely reached the network effects inflection point where it is an ecosystem all its own — users, buyers, sellers, etc.
Same thing with community-driven product experiences at Unsplash and Figma. If your brand can provide value through the marketplaces at Canva, Unsplash, Figma, and the like, then you could stand to gain thousands or even millions of eyeballs. When I was at Buffer, we did this with Giphy, posting relatable GIF stickers from a Buffer Giphy account. You could do the same with Unsplash, sharing the leftovers from your photoshoot for all to use. You could post a Canva template or a Figma prototype. The sky’s the limit!
For more on how these things work, I really love the NFX website. Check out this post about marketplaces.
Always remember that marketplaces are successful because of network effects. Nfx are the core of what makes a marketplace impactful. Start by identifying the type of network effects you have, and the network effects you’re trying to build.
5. Zoom & Gong.io; Circle.so & Discord
Network effects also do a sneaky good job of providing social proof.
There’s a cool factor to hopping on a call with someone who’s using Zoom or Gong (a sales recording software).
(Or, if you don’t buy that Zoom has a cool factor, it at least has the inverse effect of the anxiety I feel when someone sends me a Google Meet link)
Same with communities. If I see someone is using Circle or Discord to run their online community, I’m intrigued.
Network effects make these products — Gong, Discord, etc. — grow phenomenally but also establish themselves in the mind of early adopters and savvy consumers as cool, hip, up-and-coming places to be. This is gold for marketers. If you align your brand with something cool, your brand becomes cool by association!
Over to you
Where do you find network effects within your marketing strategy? I’d love to hear your thoughts. Feel free to drop me an email at firstname.lastname@example.org to chat anytime.
About this newsletter …
Hi, I’m Kevan, a marketing exec based in Boise, Idaho, who specializes in startup marketing and brand-building. I currently lead the marketing team at Oyster. I previously built brands at Buffer, Vox, and Polly. Each week, I share playbooks, case studies, stories, and links from inside the startup marketing world. Not yet subscribed? No worries. You can check out the archive, or sign up below:
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