The idea
Direct network effects once came from cheap on-net calls; free calling apps have weakened them. Indirect or two-sided effects remain strong: more wallet users attract merchants, and more merchants attract users. Neither side wants an empty network, so one side is usually paid to join first until the loop turns on its own.
Use it thoughtfully
- Pick one side to subsidise first.
- Stop subsidies once the loop turns without help.
- Use family and group plans where direct effects remain.
An example
ILLUSTRATIVE EXAMPLE: A wallet pays small sign-up bonuses in one city until enough local shops accept it, then reduces the bonus.
A question to try
Which side of your two-sided product would you subsidise first, and when would you stop?
A useful framework is a starting point, not a guarantee. Effects vary with the audience, product and situation. Use truthful evidence, respect customer choice, and test the result.