25 September 2023 |

Negative Network Effects

By Adam Ryan

Negative & Positive Network Effects

There have been two transformative platforms created in the last two decades: TikTok & Facebook.

The growth and engagement of both are unprecedented. At its peak, Facebook averaged 58 minutes of usage per user per day. And now, TikTok is averaging 93 minutes of usage per user per day.

When you recognize time as the scarcest asset in the world, it’s immediately clear why these are two of the most valuable companies to ever exist.

How did they do it?

Positive network effects. 

The more of your friends who joined Facebook, the more fun it became. With TikTok, the experience became more enjoyable as more content was created on the platform.

And the key to truly positive network effects is relevance. 

For Facebook, you can only consume and share pictures with your friends. For TikTok, the more you use the platform, the smarter the algorithm becomes and the better the content you receive. 

On the other hand, there is LinkedIn. Thanks to the wonderful sales people in the world, our LinkedIn connections are now full of account executives who love to use the phrase “bringing this to the top of your inbox.”

The more irrelevant connections we have, the worse the content we receive in our feedb comes. Ten years later, my LinkedIn visits are rarely useful or interesting. 

This is what negative network effects are. 

Why does this matter?

Media companies struggle to create positive network effects as they scale. 

Let’s take Buzzfeed. They grew rapidly using tactics like personality quizzes. If I took a quiz to learn what Harry Potter house I would fall in (it’s Slytherin, by the way), I would then share that with my friends, who would then take that quiz.

This cycle created the mass adoption of BuzzFeed. 

So Buzzfeed kept pumping out the quizzes to grow their audience.

But with more quizzes, came less relevance. Less relevance created more “content pollution”. Less engagement caused a loss of users. 

Then, one day, everyone left Buzzfeed. 

Google search history for Buzzfeed over time

Media companies have to accept these 3 truths to avoid negative network effects:

  • Less is more. Less content, fewer ads, and fewer growth tactics lead to more relevance and, ultimately, more success. 
  • Make for few, distribute to more. The fewer ICPs your media company has, the more successful it will become. 
  • Distribution strategy matters. Part of positive network effects is having a distribution strategy that sets your content up for success.

Less is more. 

I respect the hell out of Gary Vee. He loves to talk about the quantity of posting you have to do to be successful. And, in many ways, he is right when it comes to playing the algorithm. But what about trying to appeal to humans?

The less you create, the more valuable it should be. The more valuable something is, the more people will share it. This is the cycle you want to fall into. If you’re adding another newsletter send for a little more revenue or push content to Twitter to just keep the algorithm happy, sooner or later, those misaligned incentives will create a negative signal in the market. And that negative signal will never allow you to grow the way you want to.

The same goes for advertisers. Do you need to increase your LTV and have better unit economics, offer fewer ads, sell out, and raise your prices? Do fewer ads. It’s the best cycle to create an enhanced user experience while making more money. 

Make for few, distribute to more

If your content creators don’t wake up and 100% know who they are creating content for, you’re on your path to negative network effects. This is why “niches” are having a moment. It’s so much easier to have success when you have a very specific ICP you create for.

The more focused you are, the more relevant you become to that audience. Now, that doesn’t mean you have to totally ignore wider distribution.

On Twitter, I occasionally write what I call edu-tainment content on media topics like “how the Friends cast negotiated their salaries” or “how the Flinstones brand uses content to commerce”. 

I’d say 90% of the people who engage with that content are not my core ICP. I use it to build brand awareness and reputation among a wider crowd. This brings more credibility when one of my core ICPs goes and looks at my Twitter account and sees I’m active and have a decent follower count. 

However, this newsletter is singularly written for media operators. Meaning, you use wider distribution to build up credibility, but narrow channels to bring value to your core audience. 

Distribution matters 

Jonah failed at this with Buzzfeed. In a 2014 interview, he said the following after the question was asked in bold. 

Jonah wanted to meet his consumers where they were. Sounds good on paper. The reality is he should have chosen which channels made his content more desirable and set up specific growth loops that enabled his business to be long-term successful.  

Every new channel he chased cost the business, but each channel deserved its own unique strategy. 

When you follow this “meet your users where they are” strategy, you end up having 10 different social channels, with most of them being poor fits, but one guy is arguing you can’t shut it down because you built a large following there. Now it feels like you’re stuck.

Build a strategy around one channel, both growth loops and monetization, and own that better than anyone else. If you get to the point where your growth loops are exhausted or monetization is stalling, then you should consider a new distribution channel. 

Why this matters even more today

AI is going to be able to help all of us produce more content. And, as operators, we should be leaning into the technology.

However, the risks of mass production of content will create even more negative network effects. Those that don’t create rules around your voice, distribution strategy, and core customer – will lose.

I’ve already seen this start to happen. A publication I used to read a lot has moved to AI. Their voice and tone used to be funny and enjoyable. Now, it’s similar to elevator music, unoffensive but forgettable. 

Don’t have your content become elevator music or have your company become the next Buzzfeed.