Base120 · Composition
Network Effects
Exploit increasing value as user base or connections grow
When to use
"Use when a product or service becomes more valuable as more people use it. Identify whether network effects are direct (same-side) or indirect (cross-side), and whether they create winner-take-all dynamics."
Example
"A telephone network with 1 user is worthless. With 2 users it has 1 connection. With N users it has N*(N-1)/2 connections. The value grows quadratically with users, which is why telephone networks, social networks, and messaging platforms tend toward monopoly."
Common misuse
"Assuming all network effects are beneficial. Negative network effects exist — congestion, spam, declining quality as user base grows. A platform that grows without managing negative effects degrades."