Although the production of excellent software is no longer sufficient to remain at the top of the game in the contemporary cloud environment, tech goliaths do not create their empire by allocating millions of dollars to ad campaigns; instead, they develop a system that develops itself. The key to such self-development and unceasing progress is a well-structured approach to the creation of network effects for SaaS firms.
To understand what we mean, consider how traditional software usually functions. Normally, the value of the software for its user does not change even if there is only one client buying it or several million clients purchasing the software.
Only when the value structure becomes exponential instead of linear does the true compounding effect begin. Through embedding collaboration elements in the software architecture, organizations can make sure that the experience provided will increase in parallel with the growing number of community members.
Thus, regular software becomes an interconnected network, or a virtual moat preventing competitors from taking the lead.
This self-reinforcing growth is possible only through the deliberate engineering of products. Wise developers use certain platforms to drive the process of adoption.
Tools such as business-oriented instant messaging or collaborative document editing become much more powerful when more divisions adopt them. The inconvenience of communication via means other than the app becomes a driver for inviting colleagues.
As more users of the product contribute more data about the operations conducted by the company, algorithms improve. They can provide the tool with predictive analytics and increased automation.
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Once the software platform reaches the level of critical mass, it no longer uses traditional marketing funnels to drive sales, but switches to a user growth strategy.
Rather than using typical marketing funnels, companies create features in which natural usage generates additional entry points. For example, invoicing or linking projects will naturally bring the tool to external vendors.
With the help of the everyday workflow, software companies can easily create highly viral products. Such a process generates leads of top quality almost for free.
It goes without saying that the ultimate aim of any modern cloud enterprise is to create a self-defending product. Once SaaS companies build network effects, they manage to move the burden of customer acquisition from the sales department to the product itself through the help of data loops, collaboration features, and cross-company sharing. Growth becomes fuel for even more powerful retention.
