ronjajacobsson January 10, 2019
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Viral? What exactly does that mean?
And how does it work? Well, let me break it down for you.

Viral is when a certain type of information, for example a video or an image, is suddenly known worldwide. This is because of the power of the internet and how fast information is reaching the whole world in todays society. When people share a post on Facebook, Twitter, Instagram and so on, if people find the post interesting – they will repost it.

If I would somehow enroll 5 people and ask them to enroll 5 new people and so on, this process would only be possible to do 13 times before the whole world is “covered” and even more than today’s population.

Now that’s what I call a viral growth!!

But how is this related to network effects?
Networks effects is generated by the power of how big the network can be, and this is what creates the viral growth. But only if the viral growth is understood as an exponential growth from start. The transaction costs play a roll here as well, they affect the network effects for customers. Transaction costs is the steps in a purchasing process – time to find the right product, information about the product, how many options do I have – which model is the best? And so on.

The network grows with satisfied members. If you think about it… if you’re a member somewhere, the more satisfied you are, the more you talk about the network as a positive thing. More members = bigger value of the network, and the bigger the value of the network, the bigger value with the members. By talking about it, sharing or posting information online, or even Likes on social media platforms will help the network to expand. And by expanding – this will give the viral growth a boost.

Increasing returns is as positive as it sounds, at least in my head. It’s how you receive positive feedback within industries, businesses and markets. “Increasing returns are the tendency for that which is ahead to get further ahead, for that which loses advantage to lose further advantage” (Harvard Business Review, 1996).

But how are all these things connected?
To ensure that the viral growth is getting the best opportunities possible, we have to understand that the transaction costs are important to follow up. They affect how much the network effects will expand and will help to determinate the size and attractiveness of what you have in hand. And the things you have left is called increasing return.

Sources:
Krokan, Arne. 2013. Nettverksøkonomi: digitale tjenester og sosiale mediers økonomi. Oslo: Cappelen Damm.
https://hbr.org/1996/07/increasing-returns-and-the-new-world-of-business
http://www.krokan.com/arne/2014/01/23/nettverkseffekter-og-increasing-returns-hva-skjera/
http://adagio2.bloggnorge.com/tag/increasing-returns/