Nir Eyal explains the "chicken-or-egg" problem for products with network effects: early on, users won't join a platform with no other users. He gives two practical solutions: (1) design the product to be valuable in single-player mode (example: Instagram filters), and (2) "prime the pump" by recruiting influencers who bring their audiences to the platform (example: early Twitter adopters like Robert Scoble). The talk emphasizes network effects' role in creating defensible businesses and suggests these two tactics to jumpstart adoption.
Chapters
Foreign. Hi, I'm Nir Eyal, author of how to Build Habit Forming Products. And today's question of the day has to do with network effects. Network effects are this phenomenon where the more people who are using a product, the more valuable it becomes. Classic examples include the fax machine, right? The more people have a fax machine, the more useful they are if anybody knows what a fax machine is anymore. And of course a social network like Facebook, where the more people who are on Facebook, the more valuable the platform is. From a business perspective, network effects are pretty amazing because they create natural monopolies. So even if you have a better product or service, but your competitor already owns the market, it's too late. Question I always get about network effects is called the chicken or the egg problem. How do you get both sides of the market on your platform? To begin with, nobody wants to go to a party with no people at the party. So this classic dilemma of how do you build a product when there's no people using the product yet? Are two ways that I know to solve the chicken or the egg problem. The first way is by making the product useful in single player mode. So even if nobody else is there, the product has to be useful on its own. Think of Instagram and how people came to use the filters but then stuck around for the network of friends. Another way to solve the chicken or the egg problem when it comes to network effects is to prime the pump. Priming the pump involves finding influencers, people who bring their own audience and who find the platform useful as a way to interact with their audience. When you think about how Twitter at first was used by the Technorati in Silicon Valley, people like Robert Scoble and Michael Arrington started using the product first as a way for them to reach their audience. And the more people in their audience that they brought to the platform, the bigger the platform grew. Those are the two ways to solve the chicken or the egg problem when it comes to network effects. Make the product useful in single player mode and prime the pump. If you have other questions for me, please ask. And as always, you can find me on my blog, near and far, on Instagram and on Snapch.
