Network Effects: They Apply to More Than Facebook

We are all familiar with networks effects. The business principle whereby a product or service gains additional value as more people use it. The most basic example is the platform that allows me to connect with you – the internet. Initially, there were few users of the internet. It was of relatively little value to anyone outside of the military and a few research scientists. However, as more users gained access to the internet there were more and more websites to visit and more people to communicate with. Therefore, the internet became extremely valuable to its users.

One of the fundamental principles of the concept of network effects is Metcalfe’s Law. The law asserts that a company’s value quadruples when the number of users doubles. Or if the number of users quadrupled, the value grew 16-fold. The rate at which the network grows in value has since been contested, however,  Metcalfe was correct that the value of a network grows faster than its size in linear terms.

Metcalfe and network effects in the traditional sense seek to describe and measure “tangible” actions. Tangible in the sense that we can see the speed at which a platform or network grows through the rate at which its number of average daily users increases.

However, network effects apply to “intangible” things as well. It applies to ideas, generosity, kindness, respect, love, empathy, etc..

We take for granted the size of our social networks. We think that our actions, words, and posture only impact those that we can see: our friends, family, coworkers, and neighbors. However, the networks that surround each of us are actually very widely interconnected.

Our actions actually ripple through our networks like a pebble in water. An act of generosity has an impact on our friends, our friends’ friends, and even our friends’ friends’ friends, better known as the three degrees of influence rule.

Further, if we are each connected to everyone else by six degrees and we can influence them up to three degrees, then one way to think about ourselves is that each of us can reach about halfway to everyone else on the planet!

Why is this important?

It’s important to remember the power that we have to influence others by our words and actions.

Social networks magnify whatever they are seeded with.

The ubiquity of human connection means that each of us has a much bigger impact on others than we can see.

What we say matters.

What we read matters.

What we eat matters.

What we share matters.

The social networks that we create become public goods. Everyone chooses with whom and how they want to connect with others. In the process, a complex and endless web of interlocked relationships and resources are created. Resources that no one person controls but that impact us all.

To truly know ourselves, we must first understand how and why we are all connected. As a start, we must remember where it all started.