Now, you may have one question in mind that now why these many companies are interested in building
a strong network effect around their business.
And the answer would be because they wanted to build a business model.
So now let's understand what exactly is a business mode.
Now, business mode came from the word mode.
So if you have seen a castle or a fort, you may have observed that they are all surrounded with water.
And the idea is that they wanted to prevent the building from these enemies.
And the businesses started using the same concept, and they named it business mode.
So business mode is the unique advantage that your business have so that they can prevent themselves
from the competitors.
Now, let's understand how these businesses like WhatsApp or Amazon are using network Effect to build
business mode so that they can prevent themselves from the competitor.
So let's understand about the different types of business mode.
Now, the first type of business mode is switching cost.
Now, if you look at the ERP ecosystem, that is enterprise resource planning, you have companies like
SAP and Oracle.
So Oracle have a product with the name NetSuite, and it's a really good example of ERP software used
by Enterprise.
Now, because these enterprises are using these ERP software from decades, it is super difficult to
switch to a new product because every single person in the company is comfortable with using SAP or
NET Suite.
And that's why in ERP you have less competition because it is super difficult to enter into this space
and acquire enterprise company.
Because if you implement a new ERP software in your company, you have to train every single employee
on how to use that ERP software.
And it is also difficult to integrate your database and some other plugins with that ERP software.
That's why switching cost is one of the type of business models that you can build in your business.
So if you make it difficult for other people to switch from your product, that's a business mode.
The second type of business mode is brand habit.
Now, if you look at clothing brands like Balenciaga or LV, you will realize that people are just.
Varying these clots because they wanted to show off to other people and they are very emotionally attached
with these brand.
And that's why brand habit is also a type of business mode.
Now, the third type of business mode is proprietary tech.
So if you have built a product that is difficult to replace, that is also an example of business mode.
And if you look at product like Google Map, so Google map is used by more than 1 billion people.
And because so many people are using this product, this product is constantly improving itself.
So because Google is collecting millions of data point from these customer, they are constantly training
those data model so that they can give much more accurate result.
So that is also a type of business mode that is proprietary tech.
And this kind of business mode can be built on the top of data network effect economies of scale.
And this business mode is built by companies like Oculus Tesla and Amazon.
So if I'll give you a simple example of Amazon, because Amazon is the market leader and majority of
the people are buying all of these products from Amazon.
The per unit.
Logistic cost of Amazon is very less, and that's how they are able to ship the best quality product
at the most affordable price and that doing a single day on your doorstep.
And that is possible because of economies of scale, because they are shipping these product in millions
of quantity every single day.
And the beauty of these network effect is that these network effect grow exponentially over time.
And after a point of time, it is super difficult to break these network effect.