Business Strategy
Network Effects
A phenomenon where a product or service becomes more valuable as more people use it. Each additional user increases value for all existing users.
Biological Context
Network effects parallel the advantages of group living: more eyes watching for predators, better information sharing, more potential mates. Herding animals, colonial insects, and social primates all benefit from network effects. The value of joining a group increases with group size.
Business Application
Network effects create winner-take-most dynamics. Social networks, marketplaces, and communication tools exhibit network effects. Once established, network effects create powerful moats—users can't leave without losing network value.