… In the age of the social web, the convenience of the social graph has largely toppled the lock-in that once kept users bound to one network over another.

Without the upfront investment in physical hardware and users’ newfound ability to port personal information and contacts, how is a company to retain its users? Is the network effect’s ability to lock-in users dead? Hardly.

The power to leverage the network effect now resides in “stored value.” Unlike network access costs, stored value is investment that comes in small increments with repeated use, increasing the importance of the service the more a user engages with it.

Stored value comes in four forms, and companies leverage these tiny investments to build lock-in to their service and retain users.

Creative content (e.g. Pinterest, Facebook, Instagram): Users invest in creating a portfolio of creative content, which forms the basis of their interactions on the platform. The quality and quantity of the content results in more interactions with other users, which, in turn, provides greater value to the content creator.

Reputation (e.g. TaskRabbit, AirBnB, StackOverflow): Although marketplaces for physical goods, such as eBay, have been around for some time, services marketplaces have grown in popularity lately. Trust is an important component of this new breed of network effects business. As a result, reputation built on the platform directly contributes to greater value for all users. Building reputation on a platform requires consistent delivery of highly rated services and may also involve qualifying for some minimum criteria set forth by the platform. Hence, once a service provider builds reputation on a platform, it prevents her from migrating to a competing platform.

Usage Data: Users store value in the form of data, either by actively collecting information, such as in the case of Dropbox or Reddit, or passively as their usage improves the service by offering more relevant information, such as is the case with Quora, which delivers a personalized news feed based on usage. The more a user consumes information through the platform, the more intelligent the algorithm becomes in recommending pertinent content to the user. In both cases, the data set built by or for the user delivers greater value with increased usage, something that won’t directly be available on a competing platform.

Influence (e.g. Twitter, YouTube channel subscriptions): Networks that utilize a one-sided follow model create an influence dynamic. Unlike importing contacts or “friending” people, collecting followers is largely outside the direct control of the user. With the exception of sketchy tactics banned by the Twitter terms of service, accruing more Twitter followers can only be done by tweeting content others find interesting enough to share. As the user’s follower count grows, so does the stored value in the network and the incentive to stay actively engaged.

Creating a network effect is not what it used to be. Today, stored value created by the users reinforces the power of the network effect to retain users and grow market share. This dynamic makes creating user habits all the more important as investments of stored value only occur through successive passes through the user experience 

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