KEY QUESTIONS

1. What is the difference between network effects and virality?

2. How can products have one without the other?

Network Effects and Virality are often confused in the online world, possibly because the two often occur together and, in such cases, end up reinforcing each other.

Network effects and Virality are, however, completely different. There are many products which have network effects but are not viral. Conversely, many viral products do not have network effects.

QUICK DEFINITIONS

A product with network effects gets more valuable as more users use it. Network effects are achieved only after a certain critical mass is reached but can prove to be a very strong source of value and competitive advantage beyond that point.

A viral product is one whose rate of adoption increases with adoption. Within a certain limit, the product grows faster as more users adopt it.

SAME SAME BUT DIFFERENT

Both network effects and virality tend to magnify value and growth respectively as more users use the product. This is probably why the two concepts are often confused. However, as elaborated above, the two actually mean very different things.

In fact there are many products that exhibit virality without exhibiting network effects. A case in point being email and crossplatform communication products. A key feature here is that they are either interoperable across networks (Hotmail) or leverage an underlying network for both the viral transmission as well as delivery of the value proposition. In the case of SurveyMonkey, EventBrite etc., that underlying network may be mail, a social network or even a blog.

There are many others that exhibit network effects without exhibiting virality. Products with indirect network effects such as marketplaces may not grow virally. In such cases, network effects are a result of aggregation of the two sides and while each side can be brought on virally through some incentive, it's very difficult to leverage the indirect network effect to get users on one side to come on through invitations or interactions from the other side.