The Network Effect

Back in my business school days, I took a class titled "Technology & Strategy." And I remember the premise my professor laid out: if you are able to take advantage of network effects in your business, you will reap increasingly profitable rewards. The moat between you and your competitors will widen. You will position yourself as a winner, and ultimately take all.

Now this was in 2004 when networks like MySpace and Facebook were just emerging as a way for college kids to make and keep track of friends. The idea that such forums had any application or benefit in the business world seemed a little far-fetched.

But that was then. Now, there's little doubt about the impact that networks can have. From Etsy, Airbnb, Uber and Lyft, to ebay, OpenTable, and TaskRabbit, they are creating new, disruptive models that are changing the very way we live and work.

The fact is, the world today is a network - a digital network. And to thrive in it, we need to be connected. Savvy companies recognize this.

Take Microsoft. Last month, the company announced plans to acquire LinkedIn - the world's largest professional network. As CEO Satya Nadella put it in a letter to employees, "this deal is key to our bold ambition to reinvent productivity and business processes. How people find jobs, build skills, sell, market and get work done and ultimately find success requires a connected professional world."

Networks are fueling these connections. But there are a lot of them out there. And the number seems to grow daily, making it hard to keep up. How can you find the right ones to achieve your goals? Consider three things:

1. When it comes to networks, "the more the merrier" doesn't apply. To create value, networks need to do more than just sign up members. They need to engage them and make it easy to participate and contribute. To share insights. Swap best practices. Discuss market trends. This is where innovation and advantage come from.

2. Today's professionals have little tolerance for complexity. They expect technology to make things easy and want to work in the networks where they live without having to switch between them to get things done. The best networks are open, to all and easy to access anywhere, anytime from any device. They not only simplify processes, but fuel new and innovative ways of operating that remove the complexity from business and drive real transformation. Again, Microsoft provides a great example here. The month before its acquisition of LinkedIn, the company announced plans to connect its Microsoft Office 365 applications with SAP business networks used to manage procurement, travel and contingent labor.

3. Networks have to be trusted. Consumers rely on them to connect with friends and family, pay bills, manage medical information, make purchases, etc. And businesses use them to discover, connect and collaborate with partners and exchange payments. Network providers need to protect this critical - and often highly sensitive data. Reputations and brands depend on it.

Ten years ago, the concept of a connected businesses was viewed as a dream. But it has fast become a reality. Business is transforming at the speed of light. And networks are paving the way for this transformation, providing the onramp to innovation and success. Choose your network wisely. Then get on and go fast. And as my professor predicted, you will position yourself as a winner and ultimately, take all.