Business and strategy

Network Effect

When a product becomes more useful as more people use it, like a payment network, a marketplace or a social network.

Why does it matter?

Each new user makes the product more valuable to the others, which can make the leader hard to catch.

How do I read it?

Visa and Mastercard (more shops accept them because more people carry them) and Meta's apps are common examples. It can also work in reverse: if users start leaving, the product becomes less useful for those who stay.

Example

A marketplace with many sellers attracts more buyers, and more buyers attract more sellers. That cycle can keep the largest marketplace ahead of newer ones.