Network Effects In The World Of Gaming

One of the things that people often mistake is thinking that game companies don't have network effects. What people think is that a game is a game and you play it and that's about it, and that couldn't be farther from truth. Let's start by discussing the actual network effects in games - and there's quite a few of them.

First is the direct multiplayer network effect which is a standard network effect, meaning that the more users that are participating in the game, the more value all the users that are already part of the game. And the more value the new user that's coming in is getting from the entire community that's already playing there. This is common and it's true for most games but especially true for multiplayer games. And multiplayer games can be anything from a poker game all the way to Fortnite or Call of Duty or any other major game. When we play these games, we want to play against others, we want to be matched. We often call this liquidity. If we don't have enough players to play with, the game loses its value. But even if we have, let's say we have 50 people that want to play, if those 50 people are all different levels, it's really not going to be fun for everybody. We now need to match 50 people that are around the same quality of play, which means that first, be able to do that and do it in the right geography so there's no latency between the different people that are far one from the other, and if we'd want to do it even in the same language sometimes, we require more and more and more and more games. That's the very first and basic network effects of games, liquidity. However, that's not enough.

The next layer is being able to play against people that you actually know. In this particular case, if you want to play Fortnite, and you want to play in the squad with your friends, then the fact that you can play with actual people that you know creates an even stronger network effect, which is why many games are trying to get more users to be able to play with each other rather than just play with strangers.

But even that's not enough when it comes to the network element of the games' network effect because in many of these games there's something called clans. Clans take groups of people, sometimes people that know each other but often people that don't know each other, and put them in this organization. Being in the clan gets you tasks that you need to do on behalf of the clan. It gives you benefit for participating in the clan. It gives you mission that you need to do, not as an individual gamer, but as the clan. And then because of that, participating in the clan actually creates a much stronger feeling of belonging, a much stronger network effect which gets people to stay much longer in the game.