Network externalities – benchmark insights increase in value as the member numbers exceed 500

In a network market for a service, the value of the service increases with the number of its adopters. A clear example would be a benchmark survey since the value of the reports increase directly with the expansion of the survey participants group (the same for collective evaluations of law firms). In fact, value grows faster than participant numbers. This multiplicative quality is referred to as a “network effect.”

The more law departments are able to isolate comparable law departments in a benchmark data set, the more valuable its findings are to them and that in turn attracts more law departments to join. A snowball effect of viral marketing takes off. At some point, a benchmark service with the most members and capabilities will dominate the scope and interpretation of the benchmark metrics it collects (See my post of Feb. 12, 2006: legal wikis will spread as people appreciate the value; Nov. 13, 2007: network effects and law department management; Nov. 17, 2008: references for vendors build network effects; and Dec. 17, 2009: Metcalf’s law.).

Tune into the network! Submit your department’s data now and get the July release with more than 525 law departments! Add your six pieces of 2009 staffing and spending data here.

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