Breaking Down Network Effects

The best way to measure the acquisition effect is usually by the percent of organically acquired users and the customer acquisition cost going down over time (within a network until a certain point).

The engagement effect is best measured by looking at usage metrics such as time spent / posts made / transactions completed (or whatever the key atomic metric of engagement in the product is) and retention rates of various cohorts, with ideally later cohorts having higher retention rates off the bat, and older cohorts showing an uptick in retention... See more

Chen talks about how Network effects aren’t one singular effect, but rather made up of three distinct forces:- The Acquisition Effect which allows products to tap into their network to drive growth in users more cheaply as the network grows- The Engagement Effect which involves user engagement going up as the network grows- The Economic Effect whic... See more

Typically, a true economic effect is usually seen through average revenue per user going up (even adjusted for engagement) due to increased conversion rates largely due to the data network effect.