What Makes Data Valuable: The Truth About Data Network Effects

...we learned how much less important viral effects are to long-term value creation than defensibilies like network effects.While viral effects are a useful attribute of products to reduce the expense of acquiring new users, network effects remain the key driver of value creation for startups in the digital age by keeping people using them.

However, it’s also true that a lot of network-based utility only is realized at some level of scale. (As per NFX: “The simplified definition of network effects is that they occur when a company’s product or service becomes more valuable as usage increases.)

The thinking behind building network effects is less about emotion and more about the math for customers around getting value — utility. Giving the customer more value out of your product by getting your other customers to put value in it. Customers are not even usually aware that they are doing mental math around the value they are getting from ne... See more

One important lesson here is that engagement matters to network effects. A first level understanding of network effects is that they occur when more users = more value for existing users. That’s true, but go one level deeper, and you realize it’s actually the amount of usage that matters.

The second fundamental truth of data business models is this: whoever controls the data, captures the value. Intermediaries get squeezed.  A common failure mode is to build a business on top of somebody else’s data. If you depend on a single upstream source for your data inputs, they can simply raise prices until they capture all of the econom... See more

The Future of Virality and Network Effects With viral effects there are seasons to it, depending on the channels and technologies you have available. Going viral today is more difficult than it was during the 2000-2012 Golden Age because most platforms have become saturated with the same viral strategies that worked early on...Virality has therefor... See more