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A Summary of

16 Ways to Measure Network Effects

by
Li Jin, D'Arcy Coolican
a16z
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Network effects are crucial to building a new business. While many people think a company either has network effects or they don’t, it is more complicated than that because network effects grow and change over time.   There are 5 main categories to measure network effects. In each category is a list of questions that can help a company determine if their company possesses network effects.  Acquistion-related metrics  1. What percentage of new users are organic?  2. How much traffic is generated internally vs. externally?  3. How much do you need to spend to acquire customers  Competitor related metrics  1. How many of your users use/ are active on similar services?  2. How easy/much value can a new user gain from joining the network?  Engagement-related metrics  1. Is user retention increasing for new users?   2. Is retention increasing for newer users using a core service?  3. Are newer cohorts retaining better on a dollar basis?  4. Are participants in the oldest market better retained than those in newer market?  5. Are users becoming more engaged over time?  Marketplace metrics  1. How successfully can the two sides of the marketplace find each other?  2. Is there enough supply and does it fit the users’ needs?  3. How long does it take for supply and demand to match?  4. How concentrated is the marketplace?  Economic metrics  1. How much are you able to charge/ how much are customers willing to pay?  2. What do the unit economics look like?   

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