The 19th annual Israeli high-tech industry Journey Conference, jointly sponsored by consultancy and accounting firm EY and "Globes," opened today.
2,000 people take part in the conference annually, including industry leaders, startups, leading international high-tech companies, venture capital funds, Israel and overseas investors, and many others.
NFX Guild managing partner James Currier was the moderator for a panel on the network effect. He opened the discussion by explaining the panel's subject, saying, "40% of the companies founded since 1994 have provided a network effect, and 60% of all the value created in the technology industry has come from such companies. What is the network effect? Every user gives value to all the other users. Think about Facebook or a telephony network - every user adds value, and when there are many users, everyone stays, because they get value from it."
Fiverr cofounder and CEO Micha Kaufman related what the network effect of the company he created, which developed a platform enabling freelancers like designers and translators to sell their services online and pay only a nominal sum for the privilege, looks like. He explains, "So far, Fiverr has registered 25 million transactions in 120 different fields in our service, and a third of them were only in the past year. This has a very big and repeating network effect of users using the service. We didn't think it would happen at the beginning. We concentrated on creating a type of glue, and today, people like the product, and love talking about it.
"The first stage for us was creating supply from sellers, before the users came. Look at Uber with a number of drivers, or Airbnb with hosts, or Kickstarter with projects. In our case, it was building an adequate supply of sellers, and only then worrying about demand from the customers. Six years later, when people think about the main value we bring our sellers, it's the supply of customers. We didn't spend a cent on marketing in the first three years. It was all organic growth."
Currier: "So your sellers brought the buyers, and now that the buyers are there, the sellers don't want to go anywhere else."
Kaufman: "Exactly. In the end, you can build various tools for our sellers, but the most important thing is to bring them customers."
Daniel Cohen from Carmel Ventures spoke about whether the fund's investments took companies' network effect into account. He said, "The reality is that when I look at our investments in the past two years, maybe we didn't call it the network effect, but when we invest and it doesn't exist in some of the businesses, we need to see what part of it is relevant. One example is fairly clear: we invested 18 months ago in a social games company. So it's logical that it's social, but growth came only when they launched a tournament in which other people played against you. I saw how all the numbers jumped, including revenue."
Karin Cabili from Dropit Shopping explained how the network effect works in the company that she created, which operates in London: "We create a network effect between sellers; instead of loading shopping bags, you can leave the bags in one of the stores we work with in the UK, and then the shopper can buy more. £50, and you can leave it at various points, with the cooperation of the London municipality. We had to explain to them that people would buy more because of this. The second network effect is between stores and customers through the platform." Cabili added, "We give them a bag with a unique number. If you're registered for our service, you enter with a user name and password. You can send it home on the same day, or the next day."
Oz Alon from HoneyBook spoke about his platform, which connects suppliers and service providers with each other, and with customers. "When we look at the conference here, we see the delicious food, the lights on the stage, and the sound," he said. "There are a lot of small services and businesses cooperating behind the scenes. At HoneyBook, we let all these service providers cooperate. This is a platform for managing events. Every supplier has his own profile on our platform. We've built a platform through which they can communicate with their customers. The second stage was to enable them to work together, so that the cameraman could work together with the event planner."
Or Offer from measuring and analytics company SimilarWeb showed figures for Facebook - one of the leading companies with a network effect - and how it is liable to punish websites. He explains, "In the old world, we would have started with Google, and gone on from there to other websites. Google was king of the traffic then. What would have happened, however, had you angered or tried to be a wise guy with Google? They would simply have shut the spigot and kept you off Google. In the mobile world, Facebook has become the rating king. 70% of the mobile devices include a Facebook application. Today, you open Facebook, today's Google, see an interesting item that somebody has shared, and enter it. The world has changed. Instead of searching on Google, you go to Facebook.
"Facebook can kick out websites, and punish them, and then a lot of the mobile traffic just goes away. So we checked what happens when Facebook changes the algorithm for what appears on your feed. We saw how publishers suffered a drop of millions of visits because of a change in Facebook."
Daniel Cohen: "So what do you do when Facebook erases you?"
Offer: "Once upon a time, Google was all there was. Now, if Facebook gets mad at you, you still have Google. It's best not to get both of them mad at you."
Published by Globes [online], Israel business news - www.globes-online.com - on October 15, 2015
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