How Network Effects Strengthen and Undermine Business Models

Building a business model leveraging network effects is the holy grail for every ambitious entrepreneur and corporate executive. Yet network effects can have both harmful and beneficial consequences. A compelling network-centric business model requires proper network design as well as vigilant attention to address potentially undesirable behavior by network participants and adversaries.

For each product/service/technology below:

Part 1. Draw a network diagram depicting the key participants (sides of the network) and the nature of the interaction (value proposition and exchanges of goods, services, money) across these sides. Start with the obvious but don’t stop there or you will miss essential strategic insights. All it takes is one participant to use these insights to gain advantage against others.

Part 2. Identify the strengths and weaknesses in the design of each network: What is working and what is not? How can incumbents improve the existing design? How can challengers undermine incumbents using weaknesses in the existing design?

  1. Google search
  2. Amazon marketplace
  3. Uber
  4. LinkedIn
  5. Bitcoin

We discuss these and related questions in Strategy in Practice and Networked Markets. For a preview in 140 characters or less, follow @StrategyTMT