“Networks Effects (NfX) Construction Guide” Method

Would you like to build a Digital Ecosystem with your company? Then we at Fraunhofer IESE are the right partner at your side. During a workshop, we will jointly develop an effective network effects cycle between the providers and consumers of your Digital Ecosystem.

Network effects (NfX) mean that the greater the demand for your platform from both your consumers and your providers, the greater its benefit. The more participants you attract to your platform, the more offers and transactions are generated on your platform, which in turn leads to more participants and so on. This is known as the network effects cycle. Your platform provides the basis for creating added value for your providers and consumers, which is at the heart of the network effects cycle. The question now is how you can create network effects in the context of your Digital Ecosystem. We at Fraunhofer IESE support you in this endeavor.

The 1-day workshop is accompanied by at least two Fraunhofer IESE experts. The workshop is about developing an effective network effects strategy for your own platform in a Digital Ecosystem. For you, this means that we take into account all relevant aspects of the network effects cycle in order to enable sustainable growth of all market sides of your platform through indirect network effects. Direct network effects are characterized by the fact that the individual benefit of your asset increases when a large number of users on the same market side also consume your asset (which can be observed, e.g., with chat tools such as WhatsApp). Indirect network effects, on the other hand, occur when the value of your asset for one market side increases as soon as a new user from the other market side joins your network. Here, the participation of one market side promotes the participation of the other market side in your platform, so that the creation of network effects on the respective market side is constantly driven forward without your intervention (e.g., providers of apartments on Airbnb attract further people who book them). This means that providers and consumers generate direct and indirect network effects out of their own motivation. We therefore design your strategy for generating network effects in such a way that they occur automatically over time.

In order to generate precisely these network effects for your Digital Ecosystem, our network effects cycle covers all relevant phases, from the creation of direct and indirect network effects to the generation of added value (e.g., time savings, convenience, availability) for the users of your Digital Ecosystem and the design of suitable retention strategies for your providers and consumers. By understanding network effects, you will be able to ensure the growth and long-term existence of your Digital Ecosystem. With our “NfX Construction Guide”, you can overcome

• the chicken-and-egg problem for your Digital Ecosystem and answer the crucial question: Who needs to be there first – the providers or the consumers?
• the problem of reaching the critical mass of providers and consumers, i.e., growth without external investment, which your Digital Ecosystem needs to achieve as quickly as possible in order to be self-sustaining.

“NfX Construction Guide” Workshop – Overview

Prerequisites for participation

• Group size: 4-8 people in a maximum of two groups 
• The participants know (1) who operates the platform, (2) which asset the platform brokers, (3) who the asset consumers are, and (4) who the asset providers are.
   

Goals

• Definition of your network effects strategy 
• Continuous growth of your platform’s market sides through indirect network effects
   

Method

• One-day workshop on site or digitally 
• The workshop consists of four steps: 
  1. Answering four key questions about your Digital Ecosystem: Who is the operator? What is your asset? Who are your consumers? Who are your providers?
  2. Determining your strategies for marketing, onboarding, and customer retention for both your consumer and your provider side
  3. Generation of direct network effects within each market side 
  4. Generation of indirect network effects by means of which your provider side fuels the growth and added value of your consumer side and vice versa  
• The “NfX Construction Guide” workshop is prepared, moderated, processed, documented, and summarized by IESE. 
   

Results

• Documentation of the workshop – incl. photo record in the case of an analog event 
• Concrete measures for marketing and onboarding as well as for retaining your providers and consumers
• Overview of the direct and indirect network effects of your Digital Ecosystem 
• “Big Picture” of your network effects cycle, showing the added value for your providers and consumers 
   

Recommendations

We recommend using the NfX Construction Guide after a “Tangible Ecosystem Design” workshop and the “Business Model Construction Kit” workshop.