Network Effect & Traction: The Common Rule of Growing a Web3, NFT, Metaverse or Blockchain Startup.
Every aspiring early-stage Web3, NFT, Metaverse, or Blockchain-focused startup should consider network effects as a way to make their platform or solution more valuable and achieve significant traction. The traction of your startup is an important metric to monitor because it shows potential investors how far you have progressed with the business – it’s not enough to just have a great idea. Traction is what will set you apart from competitors and help you succeed. This is especially important in the early days of a business when every bit of progress counts.
But what are network effects?
Network effects are a type of positive feedback loop where a service gains additional value as more people use the service. For example, a cross-platform instant messaging (IM) and voice-over-IP (VoIP) service like WhatsApp can be useful only if other people have WhatsApp, so there is a positive feedback loop where each user benefits from the other users. If there are no network effects, the service will be useless.
Network effects are a powerful economic force behind many tech giants like Google, Facebook, Twitter and are present in many industries and can be seen in applications such as digital payments, and marketplaces. Network effects are created by two factors: the value of the product to the user and the number of users that are on the platform. The value of the product and the number of users on a platform is directly proportional. You increase the value of the product by improving the network effect. How do you improve the network effect? You acquire users. Acquiring users is a combination of marketing and product.
Network effects are very important in accelerating growth, scaling costs, and monetization, especially when you have multiple parties with technology in place trying to solve the same problem. Blockchain has always been the frontrunner in terms of network effects because it allows old players in the industry to migrate over to the blockchain and create their own assets. For a Web3, NFT, Metaverse, or Blockchain-enabled solution to be successful, it is important that it benefits the end customer in some way, shape, or form.
In other words, as an example, a blockchain solution must be superior to its non-blockchain counterpart. When a startup incorporates blockchain into its product or platform, it should also strive to improve the blockchain that they are using. This could be as simple as making the platform compatible with more operating systems or could be as complex as making their own unique fork of the blockchain. All in all, the goal of a Web3, NFT, Metaverse, or Blockchain-based startup should be to increase the usability, interoperability, sustainability, and utility of the platform or solution that they are building to gain traction.
Learn more about startups click here.
