Why is the Network Effect overlooked in the Mobile World?

The rise of the social network has seen rapid changes with first one networking software becoming dominant and then another. MySpace was once the leader, then YouTube and now Facebook seems all powerful. With the benefit of perspective we can expect something else to come and replace Facebook sooner or later.

All of the leaders have benefited from the “network effect” which makes a network become more and more attractive as its numbers grow. Metcalfe’s Law states that the value of a network increases with the square of the number of members. So the first software that implements a “must have” new feature and by good execution builds up a reasonable number of members benefits from the bandwagon effect – everyone wants to join that particular network, because of the number of connections they can make as soon as they join, and it is very difficult for a competitor to build their own network to usurp the number one position. The bigger the number one, the more it dominates and weakens the competitors.

But in the mobile world, operators are regularly categorised as just “dumb pipes” despite the fact that they have the benefits of large networks – the millions of subscribers with whom they have not just a relationship, but a billing relationship They may not have exploited the relationship fully in the past. But as social networking becomes mobile with more and more people using their mobile phones to share information, news, likes, photos and videos with their friends, they are in a position to exploit their connections.

In our increasingly globalised communities we also have to remember not just the hype about the latest smartphone and what it can do on fast networks, but also the billions of users, particularly in Asia and Africa, who are still on featurephones and just starting to have the capability to do simple mobile networking. The network effect of those billions will dwarf the existing networks and this gives mobile operators have a huge advantage they can exploit.

Vodafone’s interview in GSMA’s Mobile Business Briefing, published today, shows they understand this potential.

It is also something well understood by FlyTXT, the mobile marketing and advertising company in which I am an investor, whose software allows operators to manage targeted communications to different user groups with pinpoint accuracy.