- Network effects occur when a network's value increases for users as more people begin using it.
- The adoption of a product by an additional can create two effects:
- **Total effect**: increase the value to all other users;
- **Marginal effect**: enhances other non-users' motivation for using the product.
- Upon reaching critical mass, a [bandwagon effect](/zettel/bandwagon-effect) can result.
- As the network becomes more valuable with each new adopter, more people tend to use the network, resulting in a positive feedback loop.
- Airbnb, for example, increases its value as more people use it. The network effect happens because if more people use it, more people want to offer their places, attracting more people.
- The network effect is an entrance barrier because it's difficult for competitors to enter the market and compete with a company that already has a good network. This advantage is also known as the [first-scaler advantage](/zettel/first-scaler-advantage).
- Social networks, as Facebook or Twitter, are good examples of the network effect.
- [Wikipedia. Network effect](https://en.wikipedia.org/wiki/Network_effect)