PayPal corporate meeting room.

Peter Thiel explained to several company executives: "If there is a product or service that increases in value with each increase in the number of users, then that product or service is called a 'network effect'.

"We're a company that relies heavily on 'network effects'. To realize people-to-person transfers and payments, it must require a very large number of users for this network to be established.

"Now that our products have been released, we need to establish an absolute advantage, in addition to the excellent performance of our own payment software, but also to occupy an excess market leading position.

"So, when an old user recommends a new user to complete the registration, then we will give the referred user a subsidy of $10."

Everyone at the conference table looked at each other in shock! Such a ruthless subsidy simply doesn't give competitors a way to live.

A fat man smiled at a thin man, "It seems that Roy's worry-free payment company is going to eat dirt behind us." ”

"Hahaha......" The fat man's taunt resonated.

Peter pointed to the computer screen behind him, which contained a small program written by the engineers. This program will display the total number of users in the PayPal database on everyone's computer screen. The name in front of this number is not called "total number of users", nor is it called "cumulative number of users", but -

"Now, what is the Domination of the World Index?" Thiel asked passionately.

"249 people!" The crowd read aloud.

"Our goal?"

"Rule the world!"

……

————

On the other hand, Roy has just finished explaining the nature of network effects.

There are many examples of network effect products, such as the familiar Twitter (China's equivalent of Weibo), and the man who is known as Twitter ruler by US President Donald Trump. With each additional user on Twitter, the number of people you can follow and the content you can watch increases, and that increase is exponential.

After hearing Roy's explanation, Noah asked, "For any company, the value of having new users to join will definitely increase?" Who's going to turn away a new user? ”

Roy corrected, "It's not that when more people use our products, more people will be attracted to use our products. This logic is wrong!

"It's not a 'network effect'.

"McDonald's, for example, is definitely a company that doesn't have a 'network effect'. Because having one more person to eat at McDonald's doesn't naturally make McDonald's fried chicken better. Even if too many people crowd into the same store, the McDonald's dining experience will drop. However, if a lot of people go to McDonald's, it may lead more people to eat it. However, this is not called a 'network effect', but a 'word of mouth'. ”

Noah nodded, he could understand this, but he ...... "What you said, old users will get a reward of $10 for every new user they recommend, so that our products can be quickly shared by everyone, so one to ten, ten to hundred...... More and more people are familiar with our products, is this a 'network effect'? ”

Roy couldn't help but sigh that Noah was really an elite in the traditional industry, and many concepts were easy to confuse when he first came into contact with the Internet field, but this also gave him the opportunity to establish authority, "Noah, this conclusion is also wrong." This phenomenon has a proper term, called virality. But this is not a 'network effect', it can only be said to be a very useful means for businesses to acquire users. ”

This concept is also easy to understand, for example, when WeChat first launched red envelopes, the number of new users and activity increased greatly, which is a typical case of "viral" transmission.

Noah was not ambiguous, took out a notebook and recorded Roy's statement bit by bit, and spent more time thinking, reasoning and verifying in private. He thought for a while and said: "If more users use our products, we can provide our products or services at a lower cost, so that more people can afford our things, so we have more customers ......"

Roy has a black line, this Noah has been in the traditional industry for too long, and now he is wearing it again, "If you have some basic understanding of economics, you should have discovered that this is called 'economies-of-scale', which is a basic economic concept. Economies of scale allow a company to provide services to its users at a lower cost, so it is not the same as a 'network effect'. ”

Economies of scale can save costs, but they can also be harmful. For example, BesTV, a home film and television giant, used to have the advantage of six or seven thousand offline rental stores, but once it is about to transform, all these advantages have become cumbersome.

In short, the only way to judge the "network effect" is to see if the value of its product increases exponentially with each user coming in. Virality, word-of-mouth, and economies of scale are not network effects.

The two repeatedly communicated, corrected errors, and gave examples, and Noah was able to figure out these concepts and have the most basic entrepreneurial thinking of network products.

After this confrontation, Noah was convinced, although he had not directly agreed to the "$10 new user subsidy" plan, but it was obviously not so resistant.

Roy also secretly rejoiced in his heart, and there was a chance that his subsidy plan would eventually pass.

……

————

Firm.

Elon Musk has just downloaded a PayPal payment system on his computer, engrossed in exploring the functions on it, and the longer he uses it, the more excited he becomes, and the light in his eyes is sharper and sharper.

He picked up the phone and pressed the extension: "Mary, call all the management at once, I have something important to announce." ”

"But...... Is this time really okay? Mary, the assistant on the other end of the phone, reminded.

Elon looked at the time, it was already 6 o'clock in the evening, and probably most of the employees had already left work. Without much hesitation, he decided: "You call one by one, notify all the management, and the conference room will be in half an hour, and that's it." ”

Hung up.

Elon quickly threw himself into his work, ignoring the passage of time.

Half an hour later. Mary knocked on the door and reminded, "Boss, it's 6:25 and the meeting starts in 5 minutes." ”

Elon picked up the materials and walked briskly to the conference room.

Most of the management personnel in the conference room were already in place, and they were talking to each other in low voices, not knowing what kind of nerves their boss was experiencing, and what kind of whimsy suddenly appeared.

After Elon came in, he did not name him, let alone say hello, but directly entered the topic with high spirits: "Today, I found an amazing software called PayPal, and everyone sitting here tonight must download this software when they get home, because the functions implemented in it are our company's goal tomorrow!" ”

Everyone was stunned, and this strategic transformation was so abrupt.

……