What is the “network effect”?
Economists define the “network effect” as a phenomenon whereby a good or service becomes more valuable when more people use it. As an illustration, consider fax machines – as they increased in popularity and more people acquired them, each fax machine became increasingly more valuable to its user, because they could now communicate with a greater number of people. Nowadays, network effects are a key dynamic behind the success of many technology and software-based companies. Think of titans like Microsoft, eBay, or Facebook – they would not be where they are today if it wasn’t for a strong positive correlation between the value of these platforms and the number of users they have. Facebook has value because everyone is on Facebook, which entices more people to join Facebook. This, in turn, makes more businesses advertise on Facebook to reach that growing audience, bringing in more money for Facebook, and so on and so forth in a virtuous circle.
How does this concept apply to the IDW?
IDEA’s Industry Data Warehouse (IDW) displays two different network effects:
First, much of the theory underlying network effects holds true for the IDW in that more participating manufacturers attract more participating distributors, and vice versa. Why? As a manufacturer, when more of your distributor trading partners are pulling data from the IDW, your business gains more value from the IDW. You can reach a greater number of your distributors while having to provide your information to fewer locations. Similarly, as a distributor, the more of your manufacturers are supplying their data to the IDW, the greater value you derive from this data sharing mechanism, because you can access information from disparate sources through one source.
Second, the IDW also benefits from the data network effect. Data network effects occur when a product that is powered by information becomes “smarter” as is gathers more data from its users. In other words, the more electrical companies the IDW serves, the more data is contributed to the platform; the more data is contributed, the “smarter” and more comprehensive the IDW content becomes; the better the IDW content is, the better the IDW is able to serve its users and the electrical industry as a whole.
The IDW displays positive network effects; so what?
In our tech-driven, eCommerce-focused economic environment that is continuously growing more interconnected and highly communicative, network effects have become the holy grail of business success. Understanding this phenomenon and capitalizing on it can help you improve customer service, exponentially raise efficiency, and build a better business. Companies that harness the power of networks will dominate the future of the industry, and the IDW can help you be one of them.