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The Net Effect of Network Effects

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This preso was given as part of a three-hour workshop at the 2009 In2:InThinking Forum, a yearly event held at Pratt & Whitney Rocketdyne.

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The Net Effect of Network Effects

  1. 1. The Net Effect of Network Effects Can Social Computing Change the Game Within an Enterprise?
  2. 2. What we’ll talk about <ul><li>Definition of network effects </li></ul><ul><li>Web 2.0 and network effects </li></ul><ul><li>Network effects and Enterprise 2.0 </li></ul><ul><li>Facebook, LinkedIn, etc. </li></ul><ul><li>The value of “The Long Tail” </li></ul><ul><li>Network effects and innovation </li></ul><ul><li>What have we learned? </li></ul>
  3. 3. Definition <ul><li>Classic example is the telephone. The more people who own telephones, the more valuable the telephone is to each owner. </li></ul><ul><li>This is commonly referred to as a “positive” network effect. </li></ul><ul><li>The Network Effect is the effect one user of a good or service has on the value of that product to other people. </li></ul>
  4. 4. Definition <ul><li>Negative network effects can also occur, where more users make a product less valuable </li></ul><ul><li>This is commonly referred to as “congestion” </li></ul><ul><li>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. </li></ul>
  5. 5. Definition <ul><li>Another example – the fax machine </li></ul><ul><li>Despite technology hardly changing, as well as the advent and growth of e-mail, cell phones, voicemail and Blackberries, fax machines persist. </li></ul><ul><li>Suggested reasons </li></ul><ul><ul><li>Low prices </li></ul></ul><ul><ul><li>Perceived security and legal needs (such as signature requirements) </li></ul></ul>
  6. 6. Why Are Networks Important? <ul><li>Good networks create a collection of options </li></ul><ul><ul><li>Distribution/reception of information and knowledge </li></ul></ul><ul><ul><li>General exchanges with peers </li></ul></ul><ul><ul><li>Affiliation – establishing and maintaining groups </li></ul></ul>David P. Reed –
  7. 7. Reed's Law: 2 N - N - 1 Metcalfe's Law: N(N - 1)/2 Where N = The Number of participants
  8. 8. The Potency Potential
  9. 9. The Collaboration Curve <ul><li>Adding phones, faxes, etc. adds to effect, but they don’t perform better as a result </li></ul><ul><li>People and institutions do </li></ul><ul><li>Players of WoW take 150 hrs. to earn 1 st 2M experience points </li></ul><ul><li>Game gets harder, but in next 150 hrs. players learn four times faster </li></ul><ul><li>Authors attribute this growth to the use of wikis, blogs, discussion forums, and numerous other sites and tools that exist outside of the game </li></ul>
  10. 10. So . . . What are we really talking about? <ul><li>Collective Intelligence </li></ul><ul><li>Wisdom of Crowds </li></ul><ul><li>Crowd sourcing </li></ul><ul><li>Social Tagging </li></ul><ul><li>Social Bookmarking </li></ul><ul><li>Awareness, sharing, and elevation </li></ul>
  11. 11. Web 2.0 and network effects <ul><li>World-Wide Web (www) originally intended by Berners-Lee to be more than one-way </li></ul><ul><li>Web 2.0 has begun to realize that goal </li></ul><ul><ul><li>Tim O’Reilly suggests harnessing collective intelligence is the determining factor </li></ul></ul><ul><ul><ul><li>Hyperlinks </li></ul></ul></ul><ul><ul><ul><li>Google, eBay, Amazon </li></ul></ul></ul>
  12. 13. Network effects and Enterprise 2.0 <ul><li>Will the widespread availability of Enterprise 2.0 design principles serve to “flatten” traditional enterprise governance? </li></ul><ul><li>Can they act as a “force multiplier”? </li></ul><ul><li>What role does trust play in a company’s success? </li></ul><ul><li>Is the “Long Tail” accessible in contemporary organizations? </li></ul>
  13. 14. Facebook, LinkedIn, YouTube, Flickr, etc. <ul><li>Dare I say . . . Twitter? </li></ul>
  14. 15. Network effects and innovation <ul><li>Innovation is intertwined with strategy </li></ul><ul><li>Both are iterative processes </li></ul><ul><li>Innovation is useless without strategy </li></ul><ul><li>Developing strategy is dependent on understanding what you’re capable of </li></ul><ul><li>It’s also dependent on how well you can harness your enterprise’s network effects </li></ul>
  15. 16. <ul><li>Open APIs (Application Programming Interface) </li></ul><ul><li>Mashups (Combining 3 rd party data and services through open APIs) </li></ul><ul><li>Sensemaking (enabling collaboration, visualization, and casual interaction with data sources) </li></ul><ul><li>User-contributed content – think, Netflix, Flickr </li></ul><ul><li>User innovation – The use of Open APIs, Mashups, etc. in satisfying customer needs </li></ul>Assisting innovation
  16. 17. What does an enterprise need to leverage the Network Effect? <ul><li>Just how difficult will it be? </li></ul><ul><li>How important is culture? </li></ul><ul><li>Will this be painful? </li></ul>
  17. 18. Thank You