So here we won.
In the last video, we had a discussion about what is network effect and how these companies are implementing
the network effect.
And this video, let's talk about the different types of network effect.
So I have broadly classified the different types of network effect into four different part.
The first one is Marketplace Network Effect.
And this is used by companies like Airbnb and Amazon.
So if you have all the good properties listed on Airbnb, then people will automatically install the
Airbnb app and then they will book their property or stay on this platform.
And same goes with Amazon.
If all the different sellers are selling their product on Amazon, then there's a very high chance that
people will install just Amazon in their smartphone.
Then we have data on network effect.
And two really good example of data network effect is Netflix and Google.
So one of the reason why Google is giving you so accurate answer is because so many people are using
the search engine and the search engine will improve over time.
So if more and more people use the same search term, then the search engine will improve the kind of
result it is showing to people.
And that's the data network effect.
Because they have large amount of data, they are able to give you the answer much better than other
search engine.
And the same thing goes with Netflix, because so many people are watching these different movie series
or web series on Netflix.
Their recommendation engine is able to recommend you a better movie than the others.
And that's the data network effect.
Next is the platform network effect, and a really good example is operating system.
So in mobile, we have Android and iOS.
In computer, we have Windows and Mac OS.
And one of the reason other operating system died is because it is super difficult to attract all of
these app developers to build these millions of app for your operating system.
So today, if you wanted to build a new operating system, it is difficult to invite companies like
Facebook or independent developers to build app for your OS until you don't really have a large number
of users.
So you will have a chicken and egg problem.
So to attract large number of users, you need to have a lot more app on your OS and to get so many
apps on your OS.
In that case you have to have more number of users.
So it's a typical chicken and egg problem and you have to solve that problem side by side.
And the fourth type of network effect is your physical network effect.
So let's say if your family members are connected with the telephone network and if a new person joins
the network, it will increase the value for other people in the network.
Now, when it comes to the execution side, there are broadly two different types of network effect.
The number one is your direct network effect.
So.
If a network effect is powered by directly connecting to different people, then it's a direct network
effect.
And this is there in case of social media app or messaging app.
And this is the strongest network effect.
So if you have more number of users using your app, then that specific thing will add more value for
the existing user.
So if you have new users using your social media app or let's say a messaging app, then they will add
more value to the existing user.
And a really good example is Facebook, WhatsApp, Instagram, Snapchat, or TikTok.
And you already know about this direct network effect.
Now, the second type of network effect is two sided network effect, and it's there in companies like
Amazon and Uber, where if you have more number of drivers or let's say sellers on your platform, this
will automatically attract more number of users.
But you also have third part that is the distribution.
So in case of Amazon, their main value proposition is logistic network.
If they have a strong logistic network, they will be able to ship all of these product at a very cheaper
price.
And same goes with Uber.
If they have more number of people using their service.
In that case, they can also attach food delivery or shipping product within a city.
And all of these things.
So that's a good example of two sided network effect where user supplier and the value proposition is
there.
Now let's talk about one of the most interesting and the important part of this video, why these companies
are interested in building the network effect.
And the number one reason is business mode.