Network effects is when the value of a product or service increases as its number of users increases. Network effects can have a huge impact on what products we buy and what services we use. As human beings, we all like fitting in and want to use the same products that everyone else uses. As the reading pointed out, network effects work well for sites such as Facebook, Twitter, and Ebay. When so many people are users of a certain product/service, more and more people want to get involved so they can benefit from the large network and not feel left out.
Recently, LinkedIn, the world’s largest professional network, has been gaining more users because of network effects. LinkedIn is an example of two-sided network effects. It has been able to entice both potential employees and companies/employers to join because of their new services. It created the “LinkedIn Recruiter” designed for companies that pay to use LinkedIn as a hiring tool. These companies can see all of the user’s profile information without the user knowing that they are looking. Recruiters can access the entire network, with over 200 million members in order to easily search for qualified people who have the skills that match what they are looking for. As more recruiters are finding success, it inspires other recruiters to join. In return, more potential employees join because they can benefit from the larger network of employers. According to Alexandra Chang, the author of the LinkedIn Recruiter/ article, “Happy recruiters mean more and more recruiters using LinkedIn, which in true network effects fashion translates to LinkedIn becoming the future of hiring. By design it’s going to be very hard for anyone else to catch up.”
Ed Nathanson, director of talent acquisition at software company Rapid7 uses LinkedIn for all of its recruiting purposes and finds the vast majority of employees on the site. “And if you aren’t on LinkedIn? He’ll probably never find you. And even if he did, he probably wouldn’t hire you,” says Chang. LinkedIn provides a good example of the strength of network effects. When more recruiters are joining LinkedIn, this encourages job-seekers to join so they can improve their chances of being hired and aren’t missing out on opportunities that their peers have.
There are obvious positive outcomes to network effects. People can easily exchange goods, services, and communication, and users can benefit from large networks when they buy obscure products on Ebay or get hired via LinkedIn. But before jumping into services, it is important to understand the negative consequences from network effects, as seen by an article about reverse network effects. When there are so many people using a network, it can be hard for the network to monitor the activities and manage its users. On sites like Match.com and LinkedIn, they want quality users and want to make sure members are using the site for the right reasons, but a high number of members makes it hard to track user activity to see if it is acceptable and relevant. There are also security issues. Sometimes people want to be involved in technology so badly that they do not think about privacy issues. People will put up personal information on Facebook or LinkedIn since everyone else uses the sites, but users might not be completely sure how they protect their information and who can access their personal information.
There is a lot to think about when deciding what products and services to use. It is part of human nature to want to be involved with what everyone is doing and have the newest product or social media tool that everyone else has, but we have to be sure it is in our best interest. Overall, the power of network effects is strong, and after reading the article about the hiring power of LinkedIn, it made me want to become a member. Did it make you consider getting an account on LinkedIn?