While often confused, the two are actually very different.
Network Effects and Virality are often confused in the online world, possibly because the two often occur together and, in such cases, end up reinforcing each other.
Network effects and Virality are, however, completely different. There are many products which have network effects but are not viral. Conversely, many viral products do not have network effects.
A product with network effects gets more valuable as more users use it. Network effects are achieved only after a certain critical mass is reached but can prove to be a very strong source of value and competitive advantage beyond that point.
A viral product is one whose rate of adoption increases with adoption. Within a certain limit, the product grows faster as more users adopt it.
Both network effects and virality tend to magnify value and growth respectively as more users use the product. This is probably why the two concepts are often confused. However, as elaborated above, the two actually mean very different things.
In fact, there are many products that exhibit virality without exhibiting network effects. A case in point being email and cross-platform communication products. A key feature here is that they are either interoperable across networks (Hotmail) or leverage an underlying network for both the viral transmission as well as delivery of the value proposition. In the case of SurveyMonkey, Eventbrite etc., that underlying network may be mail, a social network or even a blog.
There are many others that exhibit network effects without exhibiting virality. Products with indirect network effects such as marketplaces may not grow virally. In such cases, network effects are a result of aggregation of the two sides and while each side can be brought on virally through some incentive, it’s very difficult to leverage the indirect network effect to get users on one side to come on through invitations or interactions from the other side.
The following graphic shows a quick overview of how these products stack up and should help clarify the difference between virality and network effects
A framework for user incentives and virality.
Groupon got many things wrong but it got this one thing right.
The one thing your platform needs to get right to drive adoption and engagement.