Difference Between Virality And Network Effects

Virality is about the marketing side of how a platform can grow its audience in a scalable way. Network effects are about how the underlying platform gets fundamentally better the more users join in.

Aspect	Virality	Network Effects
Definition	A marketing strategy to increase exposure and user acquisition through sharing and word-of-mouth, often externally.	A phenomenon where the value and utility of a platform or product increase with the number of users.
Purpose	Primarily a growth tool and marketing tactic.	Creates a lasting competitive advantage and enhances the user experience.
External vs. Internal	Focuses on external exposure and sharing, often through social media.	Internally driven by the platform’s inherent properties and interactions among users.
Key Outcome	Increases user acquisition and visibility.	Enhances the platform’s value and user satisfaction.
Examples	Sharing a YouTube video on Facebook.	Airbnb becoming more valuable as more hosts and travelers join.
Relationship with Business Strategy	Part of a marketing and user acquisition strategy.	A fundamental aspect of platform strategy for long-term growth and competitiveness.

Introduction

In this short article, I want to clarify the critical difference between virality and network effects. Often (too often) those terms are used, or thought of as the same thing.

However, they are not, and understanding the critical difference between the two is vital to also formulate a better business strategy for a platform business model.

Network effects happen when a platform becomes more valuable as more users join it. Virality instead is a growth tool which companies can use to create more exposure for their product or platform.

Thus, a network effect is a way to create a lasting competitive advantage. And to offer more value to users. A viral effect is primarily a marketing tactic to gain traction and visibility for your product.

Network effects and virality can work together. For instance, as more users join through viral effects, if the platform is taking advantage of network effects, the more also it will become prone to improve its virality.

As highlighted in the interview with Sangeet Paul Choudary, best-selling author of Platform Scale and Platform Revolution:

Network effects create value on the platform. Viral effects spread the word about the platform or the product externally.

And he continued:

So network effects, an example is the more users who are on Airbnb. The more hosts are setting up listings on Airbnb, the more choice there is for travelers. Now that’s a network effect.

Or take the example of YouTube, the more videos that are being set up on YouTube, the more choice I have as a viewer to view things on YouTube.

Instead, virality happens when:

Now, if I take a video from YouTube and embed it on Facebook, that’s not a network effect, that’s a viral effect.

In short:

So a viral effect is a growth tool that brings external users back to the platform. Whereas a network effect increases the value on the platform, just like adding more than more and more videos onto YouTube.

Handpicked interviews:

Other business resources:

Linear business models create value by selling products down the supply chain. Platform business models create value by enabling exchanges among consumers.

Has the business world changed?

In the old business era, the business that dominated the business world were linear business models.

Nowadays, platform business models have become the dominant form of businesses as they can scale quickly and grab market shares more efficiently compared to linear business models.

Where a linear business might still be a great model for small organizations and startups, however, as companies scale, platform business models enable them to scale more efficiently to grab larger shares of the total market.

What’s a linear business model?

A linear business model creates value by selling products or services down the supply chain. Thus, its value starts by controlling the supply chain.

This concept is critical to understand as a linear business model would start from the assumption that the value is in the supply chain, and as it grows it can grab more market shares, by controlling more pieces of it. Also, a linear business model that scales will want to own more assets, thus it will require more capital to be managed.

Also, a linear business model has to be closed and controlled by definition, as this is the way value can be captured. Those logics do not apply to platform business models; let’s see why.

What’s a platform business model?

A platform business model unlocks value for its end users and consumers by enabling them to interact and transact smoothly with the other side of the transaction, be it another consumer or a producer.

Therefore, a platform business model won’t own assets, but it will make it possible to its end users to exchange things. In short, platform business models take their value from network effects. This means the platform business model scales way more efficiently than a linear business model because it’s able to reduce its transaction costs also as the scale reached is massive.

In other words, where linear business models hardly scale to the total size of the market, platform business models not only might scale to the size of the market; but they might actually expand these markets altogether.

Key Highlights

Difference Between Virality and Network Effects: Virality is a marketing strategy that aims to grow an audience through exposure and sharing, while network effects occur when a platform becomes more valuable as more users join. It’s important to distinguish between these two concepts for effective business strategy.
Network Effects: Network effects occur when a platform’s value increases with the number of users. It creates a lasting competitive advantage and enhances user experience. Examples include Airbnb, where more hosts lead to more choices for travelers, and YouTube, where more videos increase viewers’ options.
Virality: Virality is a growth tool used for marketing purposes to gain traction and visibility for a product or platform. It involves spreading the word externally, often through sharing on social media or other platforms.
Synergy Between Virality and Network Effects: While distinct, network effects and virality can work together. As more users join through viral effects, a platform that leverages network effects can become more prone to improving its virality as well.
Platform Business Models vs. Linear Business Models: Platform business models create value by enabling exchanges among consumers, leveraging network effects to scale efficiently. Linear business models, on the other hand, create value by selling products down the supply chain and controlling the supply chain. Platform models have become dominant due to their scalability and market share advantages.
Linear Business Models: Linear business models control the supply chain and capture value by owning assets. They are less efficient in scaling and require more capital management as they grow.
Platform Business Models: Platform business models create value by facilitating interactions and transactions among users. They leverage network effects for efficient scaling and can even expand markets, unlike linear models.