Virality vs. Network Effects
I had a long pitch call with a start-up today where we were trying to get under the skin of whether their product had true network effects when it came to the usage itself.
The product was a payments link that fitness coaches send to their clients to get paid. Clearly there's an acquisition network effect (aka virality) in that the users have to use that link to pay their coach - so whatever the coach mandates, the user has to use. There is also an element of referrals between coaches that can also help coach-by-coach acquisition, thereby spreading to new end users as they also get sent the same link by their coach.
But is there a true network effect when it comes to the usage itself? In other words, is there a benefit to:
- Coaches that other coaches are using the same payment method?
- Users that other coaches are using the same payment method?
- Users that other users are using the same payment method?
Without this actual usage network effect, the stickiness impact of the network effect isn't really there. If a new payment method comes along and is a much cheaper solution for the coach, they can quite easily switch it out and just send a new payment link to their clients. There's a bit of friction, sure, but it's more of a typical switching cost (i.e. a bit of hassle) than a true network effect.
In the end we couldn't build conviction on this particular case. We may well be wrong in the long run, as we often are, and I guess we'll find out.