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<img alt=" Building a Defensible SaaS Business through Network Effects" border="0" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgSDm8eVc8x6umPnzVUvStqSn5cxrFR7ueNmPvSYlLyvg8wpcjPTkF37lf9M3_boF7dy4FomoyBzSJimzn_IC_zKGCZ1TpF7-z23zWDIfWYHI1PF-lL6AI7F4rxUSnJnVbQpArNyvpkokQd/s1600/SaaS+business+data.JPG" title="SaaS Business" width="296" /></div>
<h2>
1. Priori Data Overview</h2>
<h3>
Background </h3>
<b>Priori Data</b> is a provider of <b>app store intelligence</b>. We provide market data on the leading app stores, which helps <b>app publishers, investors, and advertisers</b> make better decisions with their mobile strategies.<br />
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Our Product</h3>
Our SaaS analytics platform <b>quantifies, benchmarks, and tracks the performance</b> of players in the mobile app economy.<br />
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<img alt="Our SaaS analytics platform quantifies, benchmarks, and tracks the performance of players in the mobile app economy." border="0" height="241" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgdaK1XfNGymm1b0-GhOUSGeWnVJ9O3uM9c8DQqcYXAZ51h9oRntERHKzKc9o8FYsEk06ESGR2sqweHWLTx84fnwMQOUZht0VvrKsSTDp7e_oVwOkJOugY9sTyLlQ2MDu0-2wtclZN-jP43/s1600/Our+Product.JPG" title="Our SaaS" width="640" /></div>
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2. What is a (Data) Network Effect?</h2>
<h3>
Definition of a Network Effect</h3>
<blockquote class="tr_bq">
"The effect that one user of a good service has on the value of that product to other people. When a network effect is present, the value of a product or service is dependent on number of others using it." - Wikipedia</blockquote>
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Important Characteristics</h3>
<ul>
<li>Critical Mass</li>
<li>Diminishing Returns</li>
<li>Lock-in/Switching cost</li>
</ul>
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And what is a Data Network Effect?</h3>
<blockquote class="tr_bq">
"Data Network Effects exist when the value of additional data is compounded with time." - Tom Tunguz, Redpoint Ventures</blockquote>
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A clarifier ...</h3>
<blockquote class="tr_bq">
"Just having gobs of data is not necessarily a Network Effect, nor any sort of competitive advantage per se. <b>What your really need is unique data and algorithms that process that data into insights which then lead to decisions and actions</b>. A flywheel effect comes when you get a critical mass of data that you mine for insights;  pump that value back in to your product or service; attracts more users which get you more data." - Brian Ascher, Venrock</blockquote>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjsHGVE6HxZ_GzZ0UBR1BfCJjfcgay520pgb9RGtnYN5-c4SJfLEeHBTMFvLbwkEQ5SJMIRrl0BO4Sd9cq6-1v2-ZSPw7OKCw46od7F9M685Rdk6nA42uCbI6-GMiq4iteDaSINa0GtYmA4/s1600/waze+network.JPG" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img alt="Examples:  Network: Drivers" border="0" height="200" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjsHGVE6HxZ_GzZ0UBR1BfCJjfcgay520pgb9RGtnYN5-c4SJfLEeHBTMFvLbwkEQ5SJMIRrl0BO4Sd9cq6-1v2-ZSPw7OKCw46od7F9M685Rdk6nA42uCbI6-GMiq4iteDaSINa0GtYmA4/s1600/waze+network.JPG" title="Examples:  Network: Drivers" width="172" /></a>
Examples:</h3>
<b>Network</b>: Drivers<br />
<b>Good produced (and consumed) by the network</b>: Traffic Data<br />
<b>Network Advantages</b>: Accuracy, Predictability, Shorter Trips!<br />
<b>Outcome</b>: Acquired by Google for $1.1bn in 2013<br />
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Some benefits if you get it right ... <br />
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<h3>
Provider Benefits: Moats</h3>
Can create "<b>moats</b>" or barriers to entry discouraging competitive entrants. Scale provides defensibility.  <br />
<div class="message_box note">
If a tree falls in the forest and it isn't posted on Facebook, did it really happen?</div>
<h3>
Provider Benefits: Switching Costs </h3>
Can create switching costs for network participants, making the product "<b>sticky</b>".<br />
<div class="message_box note">
<div style="text-align: center;">
<b>Examples</b>:</div>
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 "Will I have to rebuild my friends list from scratch?"</div>
<div style="text-align: center;">
"I don't want to lose my historical data"</div>
<div style="text-align: center;">
"no one ever got fired for buying IBM"</div>
</div>
<h3>
Provider Benefits: Word of Mouth</h3>
Word of mouth referrals can by very powerful and <b>an inexpensive form of user acquisition</b>.<br />
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User Benefits: Incremental Value</h3>
<b>The value proposition increases over time</b> with no additional "work" and presumably at no additional cost.<br />
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The beauty of a network effect is that if executed correctly, it<u> fundamentally aligns incentives</u> between the network provider and the network participant.<br />
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3. Network Effects in SaaS</h2>
Four common Network Effect Strategies in SaaS:<br />
<ul>
<li>Connecting "<b>Purchasers</b>" to "<b>Suppliers</b>"</li>
<li>Network of individuals, but <b>massive ancillary B2B value</b></li>
<li>Expose customers to 3rd party developers via APIs</li>
<li>Data Pooling/Aggregation</li>
</ul>
<h2>
4. Priori Data's Network Effect</h2>
<h3>
Background </h3>
We mine, merge, and model <b>public app store data</b> with <b>prorietary publisher data</b> at massive scale. The result is download/revenue estimates for every app.<br />
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<img alt="public app store data with prorietary publisher data" border="0" height="334" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjFYde_U0ZKTtW8qU4Ekt7ySROvJumhW40VVMZQtNgtf2jU6tqUHT8TW_nzTMQWwLHC5MKvInbvgwwrJe3lXrXAz44xso0QIJH94OP8XrmR1g65z5GCPzE53uHJnpyCKriiqN2216jiSiqx/s1600/store+data+rank+puslisher+download.JPG" title="background data" width="640" /></div>
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<h3>
In Practice</h3>
Our estimate models get more acurate with every incremental "data observation". <b>The result is a better product for partners and paying clients alike</b>.<br />
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<img alt="The result is a better product for partners and paying clients alike." border="0" height="278" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhZGEVjHMbFvBKP2YqAHlJ1kOzCJdf-1Hk5BU5lMLVVSwOUc9a3LX06875U8KL6nWtqJNGr3-5uR7POljzapaVjjH4wAB2wHhYM_3c1PqexCv505_V7dgOdNPwgH13Fl_f4ARc97HtdKQCk/s1600/in+practice+data+network.JPG" title="In Practice" width="640" /></div>
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<h3>
Our SaaS Model</h3>
An app publisher with a <b>sports app</b>...<br />
<ol>
<li>Wants to<b> benchmark performance</b> and scout for new market opportunities</li>
<li>"<b>Connects</b>" account to Priori Data, allowing us to <b>enhance our estimates</b> with the data.</li>
<li>Receives <b>free access to the "sports category"</b> of our premium product.</li>
<li>Can unlock data for other/adjacent categories on a <b>paid basis</b>.</li>
</ol>
<h2>
5. Lessons Learned (so far)</h2>
A data network effect is not intrinsically a revenue stream. It is a driver of enterprise value.<br />
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Critical mass is critical. Look for niches or verticals where you can achieve that critical mass while still at small scale.<br />
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Critical mass is easier when the offering is "open", but data businesses are traditionally "closed". This is tough to reconcile.<br />
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Think hard about entering the market if there is already an incumbent with a large network effect.<br />
In a "network effect" business, competing on price has limited potential (and may ultimately hurt you).<br />
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1. Priori Data Overview Background Priori Data is a provider of app store intelligence . We provide market data on the leading app st...

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