GLOSSARY
Network effect
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A network effect occurs when the value of a product or service increases as more people use it. It can lead to exponential growth and stronger market positioning.
What is a Network Effect?
A network effect is when the more users a product or service has, the more valuable it becomes to each user.
Why It Matters
Network effects can create a barrier to entry for competitors and drive rapid growth by attracting more users to your platform.
Examples
- Social Media: Platforms like Facebook and Twitter become more useful as more people join, creating a strong network effect.
- Marketplaces: Marketplaces like Airbnb or Uber benefit from network effects; hosts or drivers attract more customers.
Related Concepts
Network effects are closely related to virality, platform effects, and economies of scale, all of which contribute to the growth and sustainability of a startup.