14 Facts About Network effects

Network effects are typically positive, resulting in a given user deriving more value from a product as more users join the same network.

Direct network effects arise when a given user's utility increases with the number of other users of the same product or technology, meaning that adoption of a product by different users is complementary.

Direct network effects can be seen with social networking services, including Twitter, Facebook, Airbnb, Uber, and LinkedIn; telecommunications devices like the telephone; and instant messaging services such as MSN, AIM or QQ.

Indirect network effects arise when there are "at least two different customer groups that are interdependent, and the utility of at least one group grows as the other group grow".

Network effects are commonly mistaken for economies of scale, which describe decreasing average production costs in relation to the total volume of units produced.

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Economies of scale are a common phenomenon in traditional industries such as manufacturing, whereas network effects are most prevalent in new economy industries, particularly information and communication technologies.

Network effects are the demand side counterpart of economies of scale, as they function by increasing a customer's willingness to pay due rather than decreasing the supplier's average cost.

Network effects were a central theme in the arguments of Theodore Vail, the first post-patent president of Bell Telephone, in gaining a monopoly on US telephone services.

Network effects were popularized by Robert Metcalfe, stated as Metcalfe's law.

Network effects economics refers to business economics that benefit from the network effect.

Network effects give rise to the potential outcome of market tipping, defined as "the tendency of one system to pull away from its rivals in popularity once it has gained an initial edge".

Network effects are the incremental benefit gained by each user for each new user that joins a network.

The Freemium business model has evolved to take advantage of these network effects by releasing a free version that will not limit the adoption or any users and then charge for premium features as the primary source of revenue.

Network effects were used as justification in business models by some of the dot-com companies in the late 1990s.