Network Effect vs. Community Engagement

I have been doing some reading on the so-called network effect, in particular the relatively recently fashionable topic of „two-sided markets“. I have also spoken with some of my friends who have more experience than I do in markets and marketing, and they mostly agree that pretty much all markets are two-sided. It is not a new development, it is not even a new discovery, it is simply a new way of looking at some of the world’s oldest professional topics.

In my opinion, one of the main reasons why the topic has recently become so fashionable has to do with a drastic reduction in transaction costs and in particular the drastic reduction in the price of switching „providers“.

Note that in a networked world, the view is that there are providers / networks, which provide access to some goods or services. The network providers function as marketplaces, bringing together both supply and demand for goods and services. As these marketplaces grow in size, more and more goods and services are exchanged via the very same single market. If you consider ebay or Amazon (and/or even Google and/or Facebook) to be such oversized marketplaces, you should immediately realize that the worlds of Wal-Mart and/or the New York Times as providers of things and/or ideas… – well, that their days are probably more and more numbered, that their demise is approaching ever more closer than their present iconic situation on the world-wide web’s horizon might make you think.

One of my current / new projects involves a somewhat different approach. This project (named „Saarland Plan“ because of its regional / „hyperlocal“ focus) minimizes the role of the network provider, thereby enabling market participants pretty much unfettered access to the markets they wish to engage in. In this situation of „competition on steroids“, supply and demand can meet up and exchange goods, services, ideas and more for large numbers of participants with virtually no barriers to entry whatsoever. There is virtually no monitoring or big data tracking. No lengthy legal documents, no tomes regarding the terms of service, no „ands“, „ifs“ or „buts“. Ideally, this would result in even lower switching costs. This experiment is all about greasing the wheels of the network so much that the network itself becomes negligable.

I recently chatted with an owner of a local slot machine provider (basically, they provide gambling machines – and I guess they have some sort of „split“ with businesses providing locations for such gambling / entertainment to take place). I noted the number of people who seach for such words as „poker“ or „casino“ – and the associated costs involved with having such services show up for a Google search on these topics. Needless to say: the cost is quite significant.

When network providers charge such high prices just to get a foot in the door, you have to wonder why anyone would care to visit the establishment. My hunch is that the days of such overpriced establishments are also numbered. 😉

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