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Embracing The Network Effect

We're becoming accustomed to thinking of the internet as just another channel. But its most powerful and disruptive effects derive from its network aspects, explains Michael Nutley...

We're becoming accustomed to thinking of the internet as just another channel. But the internet's most powerful and disruptive effects derive from its network aspects...

By Michael Nutley of



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The common shorthand for the maturing of the new media industry and the increasingly pervasive use of interactive media by businesses is that the Internet is now just another channel.

In some ways this is a bit like the adage that to a man with a hammer everything looks like a nail. If you want to talk to customers, either potential or existing, any new medium is likely to look like a channel.

But the key words here are "looks like". The Internet can act as a channel but, as a network, that’s only part of what it does, and its most powerful and disruptive effects derive from other aspects of its character. The music industry, for example, would be delighted if the Internet were just another channel for distributing its products, since it would save huge amounts in manufacturing and distribution costs, not to mention removing the retailers and their annoying habit of taking a cut of the sale price. But another network property, P2P file sharing, has left the industry raging.

Calibrating the network effect

Even in those areas where the Internet is most often supposed to be just another channel, namely marketing and advertising, network effects are becoming apparent. Viral marketing is one example, since it can only function in a highly connected world. There has, of course, always been word of mouth, but viral marketing enables you to have your customers pass on the marketing material you’ve created.

Blogging is an even better example or, at least, some aspects of it are. There are probably as many types of blogging, and reasons for blogging, as there are bloggers but they all rely on one thing – referred traffic. What makes blogging work is that bloggers comment on and link to other blogs. The Internet is providing a channel between them and their readers, but it’s the network that enables those readers to find them.

In this sense the Internet boom, which ended so catastrophically five years ago, begins to look like an anomaly. Much of the activity of that period was based on the Internet acting as a cheaper way of carrying out conventional business, and many of the ideas about genuinely new ways of doing business were obscured.

Emergent power of the internet

Speaking at a regional networking event last summer, I was asked why I thought some businesses from the boom years had survived while others had not. The best answer I could come up with was that the survivors had used the Internet to do things that couldn’t be done any other way. Ebay, for example, is often described as the world’s largest car boot sale. That scale is only achievable online, as is the seller rating system, which allows worldwide commerce to flourish. Search advertising, which now commands more of UK marketers’ budgets than cinema advertising, can only work online.

There’s no doubt that the Internet has caused some profound changes in its relatively short life. What’s really exciting is that those changes are only the start of the process. The future is networked.

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Michael Nutley is the editor of New Media Age

New Media Age and MusicTank are supporting our one-day conference In The City '05 with NMK @ the ICA, London, 7 June 2005