Network Effect

Network Effect: The network effect refers to the phenomenon where a product or service becomes more valuable as more people use it. This effect can lead to increased user engagement, market dominance, and a self-rEINforcing cycle of growth.

Examples:

• Social Media Platforms: Facebook gains value as more users join, allowing for increased connectivity and interaction.
• Telecommunications: A phone network becomes more useful as more people subscribe, enabling users to communicate with a larger number of contacts.
• Marketplaces: eBay benefits from a larger number of buyers and sellers, creating a more dynamic and attractive marketplace.

Cases:

• Microsoft Windows: The dominance of Windows in the PC market created a vast ecosystem of compatible software and peripherals, attracting even more users.
• Uber: As more riders use the app, more drivers are incentivized to join, which in turn improves wait times and service for riders.
• Bitcoin: The value of Bitcoin increases as more people adopt it for transactions and investments, creating a network of users that supports its legitimacy.