What is Network Effect?
The network effect is a phenomenon where a product or service becomes more valuable as more people use it. A classic example is the telephone; a single telephone is useless, but the value of a telephone network increases with every new person who joins. Social media platforms like Facebook and professional networks like LinkedIn are also great examples. The network effect can create a powerful competitive advantage, as it becomes very difficult for a new competitor to challenge a platform that has a large and established user base.