At the latest TechToronto, Eva Lau, managing partner and co-founder of Two Small Fish Ventures, discussed “network effect” and why it is a strong asset for startups.
Lau, who has also served as the head of community at Wattpad, kicked off her presentation by defining network effect.
“Network effect is your asset,” said Lau. “It’s the value that your product will increase as more people use it. So you think about Facebook, Twitter, Airbnb, and Uber. These are all network effect-based companies.”
“By defining an atomic unit in your product, you would then be able to define the type of network you’re about to build.”
In her presentation, Lau said “network effect equals assets.” She gave examples from Wattpad to break down the ASSET framework behind network effect, where A stands for “atomic unit,” S stands for “seed the supply side,” the other S stands for “scale the demand side,” E stands for “enlarge the network effect,” and T stands for “track proprietary insights.”
“By defining an atomic unit in your product, you would then be able to define the type of network you’re about to build,” said Lau. “So for Wattpad, with story as the atomic unit, it allows us to build a social network for storytelling. Now, once you have defined the atomic unit in your product, then now you’re facing the most daunting task of all and that is to kick start the network.”
Lau said after defining an atomic unit, emerging companies must seed the supply side and scale the demand side. In Wattpad’s case, Lau said the company took care of the supply side by importing over 20,000 public domains such as Moby Dick and Pride and Prejudice to bring readers onto the platform. Once people started building the habit of reading on Wattpad, the company attracted more writers to share their original work.
“Once you have a large network going, your proprietary data set will become very valuable to other companies.”
“Once you get the supply side taken care of, you really need to shift your focus on building your demand,” said Lau. “Wattpad did that by building mobile apps for all the mobile devices. These mobile apps allow our readers to read wherever and whenever they like…Now with more people reading on Wattpad, it attracts more writers to come and share their works…because that’s where they can find their audience for their story.”
Lau added that comments, interactions, and conversations on platforms like Wattpad, Facebook, and Twitter ultimately create a company’s network effect. She also stressed the importance of tracking a company’s data sets from various products as it can lead to further growth.
In Wattpad’s case, Lau said data sets from a feature allowing writers to choose which celebrities would best play their stories’ characters helped Wattpad become an entertainment company, with published stories, TV shows, and movies.
“Once you have a large network going, your proprietary data set will become very valuable to other companies,” said Lau. “In the last few years, popular stories on Wattpad have already turned into published books, movies, and TV shows across the world. So in closing, I just need you to remember that network effect equals asset, and network effect is an asset.”
Watch the full presentation below:
The next TechTO takes place on September 18.