I have just finished reading a book entitled “Platform Revolution”, the author illustrates the shift in focus from supply economies of scale to demand economies of scale and the impact that is having on modern day businesses. Businesses which have historically enjoyed significant cost driven competitive advantages, which while still fundamentally important to any organisation’s operational capabilities, are now seeing pressure from “upstarts” who are new entrants to the market and who by all accounts do not play by the same rules when competing.
Uber provides a service that I, like many out there, really value and have upended the public transport industry rendering long-standing market leaders to face the prospect of either joining the Uber crew or walking the plank. Can you believe that Uber’s most recent valuation for was placed at $40 billion placing it ahead of companies like Mitsubishi all the while not owning or manufacturing a single vehicle? How did Uber achieve such a massive feat in such a short amount of time? The answer lies in the power of the network effect and Uber’s unrelenting focus on achieving a demand economy of scale.
A network effect is a business term which seeks to explain the exponential increase in demand for a particular commodity (such as my taxi trip to a client in CBD) driven by the ever increasing user base which further enhances this effect.
I found a really great example of this is that of the telephone whereby the first telephone ever sold was the greatest sales feat in history (kudos to that sales guy!) as there really was no-one else to use the device with. The subsequent sales didn't just enhance the value of the first phone sold by a the factor of sales units but was driven by the network effect, with each additional telephone unit sold enhancing the overall value of owning a telephone even though a user may purchase a telephone without intending to create value for other users, but does so in any case.
This sounds like a model we could all engage in and benefit from in pursuit of our skills-based learning.
In this series of blog posts, I will be sharing my thoughts of how the network effect impacts supply chains and the education industry and how a platform like eduKazi seeks to use the network effect to drive value for our students in their quest to acquire jobable skills.