Jan 9, 2021

Breaking the Network Effect

 As most observers of Internet culture know, the power of a network is derived from the number of users on the platform. A single telephone user would have no utility from the device, but as more users join the network, the value to any single user goes up exponentially. This is also known as Metcalfe's law. 

All social media networks also follow the same principle - Facebook, Twitter, LinkedIn, and also WhatsApp. Most of these platforms have millions, if not billions, of users. As such, it's difficult for any new platform to challenge the incumbents. Even Google tried and failed multiple times to beat Facebook.

With all the recent news about updates to WhatsApp's terms of service, I had seen many friends moving to Signal recently. I personally installed Signal sometime back, but couldn't continue using it for the very same reason - network effect. If none of my friends are there, it isn't useful for me either. I uninstalled it soon after. 

However, a surge in migration provides opportunities to break the network effect that keeps the incumbent the leader. As a few people move to the new platform, they can choose to request all of their contacts to move as well. Many may not move the first time, but as they see more and more of their contacts moving and getting frequent requests to switch, the pressure builds until they also see enough value to move.

What can stop this from happening are switching costs - for example, WhatsApp has already opened up its API to allow businesses to interact with their customers.  As long as these businesses provide enough value for the WhatsApp users and don't replicate this on Signal as well, it will be difficult for the user to move and continue getting the same service. 

Personally, I have tried to convince some of my contacts to switch. Too early to say whether we will break the Network Effect.