Day 8. Network Externality
The more users there are,
the more the value of that product or service increases!
It sounds like magic, but such things exist.
"Network externality"is what it's called.
<What is an externality?>
Quoted from Wikipedia
An externality is a situation where the decision-making (actions or economic activities) of one economic entity affects the decision-making of other economic entities.
??... That's difficult. To put it simply,
"Influence from the outside (unavoidable factors unrelated to oneself)"
<Example 1> Externality (there are positive and negative ones)
I was running a yakitori restaurant in Musashi-Kosugi. Sales grew rapidly! Why?
→ Suddenly, high-rise apartment buildings were built one after another.
→ The number of people increased rapidly.
→ More people visited the shop (because the population base increased).
★ Since it is positive,"positive externality"
Conversely, because the number of people increased, the station became crowded, taking more time to get on and off,
trains were delayed, and it even affected related lines.
★ Since it is negative,"negative externality"
For railway companies and restaurants, this means they are being affected by the real estate industry's
indiscriminate construction of high-rise apartments! That's what it means.
Now, next.
<What is a network externality?>
Quoted from Wikipedia
A network externality, or network effect, is a phenomenon where the value of a product or service depends on the number of users [1]. A representative example is the telephone.
In other words, "the more users there are, the higher the value of the product!"
The number of users and the value are proportional! (The value increases even without improvements to the product itself.)
<Example 1> SNS (Facebook, Instagram, etc.) ★ Direct effect
In the extreme, Facebook and Instagram would be meaningless if there were only one person,
and they wouldn't have much value even with just a few people,
but as this grows to millions or hundreds of millions of people, you can connect with various people
and interact, so the value of that SNS increases steadily.
It is better to have more users.
Matchmaking SNS sites are also all about the number of encounters,
so the ones with more users continue to grow even further.
→ Direct effect. (Value increases as the number of users of the service itself increases)
<Example 2> Windows, game consoles, credit cards ★ Indirect effect
By increasing not only Word and Excel but also software compatible with Windows,
everyone starts using it. If the other party is using it, it is advantageous for both to use the same software in terms of compatibility, so Windows users increase even more.
→ Indirect effect. (Value increases due to the influence of other services/products)
As for game consoles, if the number of interesting software titles increases,
the game console hardware itself will sell accordingly.
At the time the console is released, the software is not very充実, but
if interesting software is released, hardware sales will grow along with it!
→Indirect effect. (Game console hardware and software)
Payment methods like credit cards will also be used by many people if they are convenient. If the number of holders increases, the number of corresponding stores and companies will also increase, and the number of users will increase further.
→ Indirect effect. (Credit cards and usable stores)
Also, Mercari applies because there are so many buying and selling users.
In Japan, LINE also has an overwhelming number of users, so before you know it, like a snowball effect,
everyone is using LINE.
If Amazon's users increase, the number of reviews also increases,
and the value of the site increases further.
If the number of users increases, the marketplace also thrives,
so the number of users coming to buy products there increases even more.
With SNS and products that have become as widespread as Facebook, Twitter, and Windows,
there are overwhelming users,so you can see that it is not easy to overturn this...At the root of the increase in users is
the fact that the convenience and user benefits are overwhelming,
which is why it has expanded this far.
It wasn't just a coincidental hit; I feel there is something special that stands out compared to other services.
If you think of PayPay's recent 10 billion yen cashback campaign as advertising to acquire users all at once,
it might be cheap.
Knowing that such effects exist
is interesting!