Back to Glossary

Network effect

Definition

The network effect is a phenomenon in which a product’s value grows as more people use it.

Online communities tend to benefit from the network effect, as each new person brings more opportunities for engagement. Each user also has their own expertise and opinions, which makes the community more valuable.

Network effect examples

Many businesses benefit from the network effect. Social networks like Facebook, Instagram, and Twitter are great examples: as more people join these platforms, their value increases.

Other businesses that have benefited from a network effect include AirBnB, Amazon, Tinder, and Uber. You could theoretically develop a much better platform than these companies, but it would be almost impossible to compete without the user base.

Network effects can happen on a much smaller scale, too. Think about any communities you are part of. Without the input of other members, these groups would offer less value.