A Perfect Example Of The Network Effect For SaaS Founders

Here’s yet another example of the network effect I talked about in-depth some time ago. SaaS founders can definitely learn from this one.

In fact, it’s a way better example than what I’ve written there, since its USP is based on the network effect.

Pinduoduo.

An e-commerce platform, where the consumers buy in groups. Why? So that the seller will sell in bulk, hence at a lower price.

The seller puts up like this (let’s say):

1-10 pcs: $10/product
10-50 pcs: $8/product
… etc

You bring either your friends or make groups with strangers so that you make a bigger bill together.

After that, everyone gets the products delivered to their address. “Groups” are mediated by the app, because you see the product but you also see a live list of groups.

“Anne Smith needs 2 more people for the order with the following details…” “Click here to join group”

So because this group needs 2 more people, I join, but I’ll also bring my friend as well — so she will have to subscribe.

Why is this a win-win?

The seller sells more, in bulk.

The buyer gets a better price, at a discount. Plus, the main selling of this app is that everything is shown at the best price (i.e. the lowest).

If the equivalents of western apps were replicated in China (or the east generally), i.e.:

  • Taobao — Amazon
  • WeChat — Whatsapp + more
  • Twitter + Facebook + News + more — Weibo
  • Ten gazillion other examples

Then western people can replicate eastern products, as long as there’s a fit.

I think Pinduoduo is a better fit for the west than it is for the east, since price sensitivity is a lesser problem here than there.

That’s the perfect example of the network effect for SaaS founders.


About Ch Daniel

I run Chagency_, an experiences design agency — we help SaaS CEOs reduce user churn. I write daily on this topic and in similar areas. Here are my best pieces.

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I’ve also founded an app that went 0-200K users in its 1st year — The Legit Check App. See everything I do here: Chdaniel.com

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