Network Effects

Networks rule our world. From the chemical reaction pathways inside a cell, to the web of relationships in an ecosystem, to the trade and political networks that shape the course of history.

Network effects occur when the value of a product or service depends on the number of users. A positive network effect means that a product or service becomes more valuable to its users as more people use it.

Network diffusion is the way things move and spread, somewhat chaotically, across a network. For example:

• Infectious diseases jumping from host to host within a population.
• Memes spreading across a follower graph on social media.
• A wildfire breaking out across a landscape.
• Ideas and practices diffusing through a culture.
• Neutrons cascading through a hunk of enriched uranium.
• Economies of scale. More scale means more scale.
• More customers mean more social proof means more customers.
• The moat shifts from feature breadth, workflow ownership, and data gravity to the elegance of the abstraction and the ecosystem around it.
• Extensibility compounds as users create the network of side-products.