For over a century, The Network Effect is has emerged as a recurring theme in the rapid adoption of new technologies. Originally introduced by Theodore Vail of Bell Telephone to corner the telecommunications market in 1908, the term was popularized by 3Com co-founder and co-inventor of Ethernet Robert Metcalf.
Metcalf’s Law: The Value of a Network (n) is directly proportional to the square of the number of connected users (n2) of the system.
In a hyper connected digital world, this means the value of your service increases exponentially as you acquire new customers. Once you build out a viable service, all an aggressive marketer needs to do is find the coveted sweet spot – how many users do you need before the investment in growth pays off. Assuming you can muster the resources to hit that Critical Mass, it’s just a question of streamlining the Network Effect’s economies of scale.
AliExpress Scales with Display
AliExpress built a network of Chinese merchants for direct buyers worldwide. To achieve critical mass, the ecommerce leader chose display advertising as its primary acquisition source, accounting for 36.85% of traffic share. As the chart below shows, not only did display deliver phenomenal customer acquisition – it drove both referrals and direct traffic.
More important – even after the company lowered display ad spend, referral traffic kept climbing to an all-time high. In other words, AliExpress hit critical mass over the summer. The company’s acquisition funnel is less dependent on banner advertising thanks to its network value.