I got network effects wrong for years.
Heard Seth Godin mention it on a podcast once. Thought I understood. Word-of-mouth, right? Build something good, people talk, adoption spreads. Simple, right?
Nope.
Here’s what I missed: Word-of-mouth spreads awareness. Network effects increase value.
Big difference.
One gets people to try your product. The other makes your product better because they tried it. Every new user doesn’t just add revenue — they add value for everyone already using it.
Eric Yuan figured this out the hard way.
He was VP of Engineering at Cisco, running WebEx, the video tool they’d bought for $3 billion. Spent his days talking to customers. Not a single one was happy.
“After the meeting was over,” Yuan said, “I felt very, very embarrassed.”
So he left. Built Zoom.
But here’s the thing — he didn’t just build a better video tool. He built one you can’t use on your own.
Free for 100 people. 40 minutes. Every meeting forces you to invite someone who doesn’t yet have an account. Every user becomes a recruiter. Not because they’re fans. Because the product requires it.
That’s not marketing. That’s architecture.
COVID hit, Zoom traffic jumped 3,000 percent in a month. “Zoom” became a verb.
Word-of-mouth can’t do that. Network effects can.
So here’s the uncomfortable question: Does adding one more customer make you more valuable to all your existing customers? Or does it just add another transaction to your ledger?
If it’s the second, you’re stuck competing on features and price. Forever.
Network effects aren’t a tech company privilege. They’re a design choice.
Are you making it?
P.S. Was spring cleaning my Notion docs, found this note, and it sparked something fresh. Probably shared some version on LinkedIn before, but thought it was worth revisiting. Speaking of which, how do you think Notion made the best of network effects? The whole world either loves it or hates it. Curious where you land.