Collections agencies are struggling with their current software solutions. These outdated collections platforms can’t keep pace with today’s demands. And it is becoming increasingly difficult to successfully operate without a modern collections solution that takes advantage of innovative technology. Interestingly, a platform that takes advantage of the network effect can provide collections agencies with a host of benefits. Let’s see how.

What is the network effect?

Everyone is likely familiar with the network effect, even if they don’t recognize the name. The network effect happens when a product or service increases in value as more people use it. This concept is particularly relevant in today’s digital age, where apps and online platforms become more valuable as the user base grows.

There are two main types of network effects:

• Direct network effects: The value of a product or service increases directly with the number of users.
• Indirect network effects: The value of a product or service increases due to the growth of a complementary product or service.

Examples of the network effect

Throughout history, many technologies have benefited from the network effect. A few of the most well-known that have greatly benefited from this phenomenon include:

Telephone

When only a small number of people owned a telephone, its value was minimal. As technology advanced, more people could afford to own a telephone, creating more value with an increase in users. Eventually, exponential growth led to the telephone being used by almost every household, adding more value to the network for all users.

Software

A multitude of software products have benefited from the network effect. Whether looking to purchase a game, anti-virus software, or practically any other software, the impetus is mostly dependent on the product itself (since the purchaser wants or needs the software). However, reviews and mentions in the media or word-of-mouth recommendations from friends, family and other customers can increase the possibility of a purchase.

The growth of the iPhone is another example, as most iPhone apps rely heavily on the existence of strong network effects. This enables the software to grow in popularity very quickly and spread to a large user base with very limited marketing.

The Freemium business model has evolved to also take advantage of these network effects by releasing a free version for users, then charging for premium features as the primary source of revenue. Furthermore, some software companies will launch free trial versions to attract buyers and increase user confidence. The duration of the free trial is related to the network effect. The more positive feedback the company receives, the shorter the free trial time will be.

Other software companies give significant discounts to students. By doing so, they intentionally stimulate the network effect. As more students learn to use a particular piece of software, it becomes more viable for companies and employers to use it as well. That way, as more employers require knowledge of a particular piece of software, the more employees will benefit from learning it. This creates a self-reinforcing cycle, further strengthening the network effect.

Websites

Many websites, such as eBay, benefit from a network effect. As the number of eBay users increases, auctions grow more competitive, increasing the prices of bids. This brings more sellers to eBay, which, in turn, drives prices down again due to increased supply.

Social networking websites, such as Facebook and LinkedIn, are also good examples. The more people register on a social networking website, the more useful the website is to its registrants.

Google uses the network effect in its advertising business with its Google AdSense service. AdSense places ads on many small sites, such as blogs, using Google technology to determine which ads are relevant to which blogs. In general, the more blogs AdSense can reach, the more advertisers it will attract, making it attractive for more blogs.

Benefits to collections agencies

This network effect can play a critical role in helping collections agencies take advantage of innovative solutions. Modern collections platforms built with real-time APIs (application programming interfaces) allow clients to access technology innovations of third-party partners within the ecosystem. This allows collections agencies to infuse multiple technologies into their entire collections journey to make their businesses more efficient and improve the customer experience.

For example, collections agencies in the ecosystem can access a partner’s solutions that enable personalized customer interactions through SMS, email, IVR, and web chat. This can boost collections success without having to add staff or purchase expensive specialized software.

Security

The network effect can also play a key role in helping keep collections agencies safe .

Many of today’s modern collections platforms feature always-on security protection with a host of security certifications, including ISO, SOC 2, PCI, and more. However, the network effect has proven to be increasingly beneficial to cybersecurity efforts in several ways, including:

• Increased data sharing: As more users join a network, the amount of data that is shared increases. This helps security professionals identify and mitigate threats more effectively. For example, threat intelligence platforms benefit from the network effect by aggregating data from multiple sources to provide comprehensive threat analysis.
• Enhanced detection and response: With more devices and users, security systems can detect patterns and anomalies more accurately. This is because a larger network provides more data points, making it easier to identify unusual activities that could indicate a security breach.
• Collaborative defense: Different organizations within the ecosystem can share information about threats and vulnerabilities. This collective approach can significantly enhance the overall security posture of all participants.

Take effect

Many collections agencies are at a tipping point. Their outdated platforms can’t handle today’s complexities. Continuing to try to force these antiquated systems to do things they aren’t built to do puts a greater strain on the entire organization. It’s time for collections agencies to look to modern platforms that take advantage of innovative technologies, such as the network effect.

The network effect can infuse a collections agency with technology that they wouldn’t be able to implement on their own – due to the prohibitive cost or inability to hire additional staff. And, as more organizations join, the ecosystem expands the best-in-class options available to collections agencies.

Don’t you think it’s time to move beyond your outdated systems and upgrade to a modern solution that takes advantage of the network effect?