Network Effect

What is Network Effect?

A network effect occurs when a product or service becomes more valuable to its users as more people use it. This is a common characteristic of social networks, communication tools, and marketplace platforms.

Why It Matters

• It creates a powerful barrier to entry for competitors, as users are unlikely to switch to a smaller network.

• Network effects drive exponential growth, as each new user adds value for all existing participants.

• They lead to high customer retention, as the cost of leaving the network increases with its size.