|Overview: Network Effect|
|Definition||The tendency for the value of a product or service to be proportional to the number of people using it.|
|Related Techniques||Critical MassEconomies Of ScaleEconomies Of Scope|
What is the Network Effect?
John Spacey, updated on April 21, 2018
The network effect is the relationship between the value of a technology, product or service relative to the number of people who are using it. The classic example is the telephone. If there were only two telephones in the world, they wouldn't have much value. The value of the telephone is that many people have one. The network effect is relevant to a large number of industries from restaurants to automobiles. For example, it's often more pleasant to dine in a restaurant that's alive with activity or to buy a car that is popular so that service and parts are easy to find.
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