Network effects from "summary" of The Great Mental Models by Shane Parrish,Rhiannon Beaubien
Network effects refer to the phenomenon of increased value of a product or service as more people use it. It is an increasingly important concept in today's world of technology, with its impact felt in many aspects of our lives.- Network effects are a powerful phenomenon in which a system grows significantly in value as the number of users increase. As more and more people join, it can become unstoppable and drive tremendous value.
- A classic example of network effect is an old-style telephone network. The more people that had telephones, the more useful it became to everyone.
- For some digital products, this concept of viral marketing has been used effectively to get initial groups of users which then eventually grew exponentially due to the presence of network effects.
- There is also a risk associated with network effects since sometimes the user base might concentrate around one platform and might make it tough for competitors to survive as well.
