What are network effects? The basic idea of network effects is that every new user of your product adds value to the other users of your product. There's lots of different network effects, which fall into that category but that's the basic idea. Most people stop there and say, "There are network effects or not," which is not the case. Most people don't understand if you look closely, you notice they behave differently. They have different mechanics to them. How you would build your product to enhance them or to grow them is different depending on which network effects you're actually building.

What Is A Network Made Of?

The fundamental properties of a network are essentially, you've got links and nodes. A node could be a person, and a link links them together. You could have a telephone be a node. Or a person. You could have a three-sided marketplace where you've got three different types of nodes. You could have 20 different types of nodes, and you've got different structures. You might have a network structure where everyone is an equal and they're all connected equally. You might have a hierarchical network structure where people are unequal, but they're still all connected in what is a network. You could have a two-sided marketplace network structure, where people are different, but they're all connected through your marketplace. There's lots of different types of structure, but they're all constructed of nodes and links.

On those links can travel money, status, information. There's a whole bunch of things that move across these links and different networks have different things moving across those links between the nodes. Then the network has size. How many nodes are in a network? Then there's network density. How many links are between the different nodes? So for instance, Spotify with connections between people and artists is probably pretty low compared to something like LinkedIn, where the number of connections between people is very high. People have 500, 2000 or 5000 connections between people. So your density ends up being quite high. Those are two core differences between different types of networks. For instance, a Twitter network, you might have 3% of people producing 90% of the tweets and having most people connecting to them, and other folks that have a very low density connection. Once you get to high density, you get what we call the white hot center.