DMA download: The recipe for a successful network effect

What is a network effect and what are the key aspects that go into creating a successful one? According to Aiken Digital's regional planning lead Mark Bellamy, the network effect is an economist term and while it has been around for several years, it is only now at "an inflection point" for the ad industry. Network effects are created when the value of a product, experience or the service provided by a brand grows with more participants. That doesn't just mean the more customers, but rather the businesses you work with, the activators of your service, and even your product the sales people in front of the counter.

Aiken's chief commercial officer Joseph Chua added on that today a lot of brands are talking about building ecosystems but the network effect is slightly different. It is about the output of an ecosystem, whether you have real stickiness with your users, that's really what a network effect judges. 

"You really start with a position of strength first. So Apple is a good example. Apple started first with the fact that it has a lot of loyal Apple lovers who love its products. From there Apple started to embed ways for the brand to interact with them," he said. Secondly, it is about what type of activities you can create within this ecosystem to hold the ecosystem together, and in doing so, achieve the network effect. So, Apple in this instance is doing so via events and as such integrating themselves into a community of users through games, people, movies or music.

"They all become sub communities but all of this in its combined totality is what creates a network effect for Apple and the real value of Apple is in their network effect because they are able to very easily cross sell - B2B and B2C," he said.  

Aiken Digital is also a Title Sponsor for Marketing’s Digital Marketing Asia conference held from 10 to 26 November 2020. Chua will be speaking on “Social commerce: Predicting the future of social commerce” as a panelist on 26 November 2020.

Listen to the full episode here.

Marketing: I know Aiken believes that very strongly that defensible brands create networks which you then describe as services and experiences that interconnect with each other to become more embedded in the lives of consumers. Can you break that down for us?

Bellamy: Yeah sure. I think the network effect is an economist term and it's been around for a few years but I think now is at an inflection point for our industry where it's becoming much much more relevant. In simple terms, network effects are created when the value of your product, experience or the service you provide as a brand grows with the more participants you have. That doesn't just mean the more customers you have, that also means the more people are involved. That could be the businesses you work with, that could be the actual extensions, the activators of your service, your product the sales people in front of the counter.

And so if they create more value, you create this exponential brand growth. One of the best and easiest example for us to understand globally is when you look at a Grab or an Uber that has a similar model. So if you think about Grab right, the more drivers you have, the more users you can attract into your network, the better service they are going to get and that works. So the more users you have, the more riders you have, the more drivers are going to come into your network, so it's kind of a self enriching network in that respect.

Grab pushed a step further than Uber, and really, where I think it has won and been more defenseful in this region ,is when it started to pivot that towards food delivery as well - starting to increase the network of their drivers by not just connecting with riders, but also connecting with someone who wants a delivery on a Saturday night. So that in a nutshell is what we mean by making you more defensible. The cost of leading is higher which means that you're more likely to stay with that product or service. The more necessary you are, the harder it is to leave that network - in a positive way, not in a trapping way. That's what we really mean by the network effect.

Marketing: What do you think are the key ingredients to creating a successful network effect in today's cluttered world of marketing?

Chua: I think the starting point is always from a position of strength. So today, if you are a very good B2C brand, you start from a position of strength and ask "What is the greatest affinity you have with your users?" 

I also want to draw a distinction here, so that at least the listeners can understand, the difference between a network effect and the ecosystem. Today a lot of brands are talking about building ecosystems, Apple has an ecosystem. Consumer electronic brands are trying to build ecosystems in the online world and offline world. Network effect is slightly different. It is about the output of an ecosystem, whether you have real stickiness with your users, that's really what a network effect judges, I just wanted to draw that distinction.

You really start with a position of strength first. So Apple is a good example. It started first with the fact that it had a lot of loyal Apple lovers who love its products. That was already a starting point and then from there Apple start to embed easier ways for the brand to interact with consumers. First in the B2C manner. And after that it started to do B2B, where Apple and schools and education start to team up and start working with partners who generate content - which became the app store. So if you think about it, Apple always started with a position of strength first as a starting point.

And secondly, it's really about what type of activities you can create within this ecosystem to hold the ecosystem together and in doing so, achieve the network effect. So, what you see Apple doing, is that they start to organise a lot of events. It started to integrate itself more into a community of users. It may not have a lot of SKUs but the SKUs are designed in a way that it's a complete interaction with the user, and then the users start to form micro communities. People who like to play games, people who enjoy Apple movie, people who enjoy music. They all become sub communities but all of this combined in totality is what creates a network effect for Apple, and the real value of Apple is in its network effect because it is able to very easily cross sell - B2B and B2C.

Whether in the future it's C2B, which we are starting to see that already for many of the brands. So we think that the evolution of really helping our customers achieve growth which is very much centred to what Aiken has created for is about helping brands create network effect.

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