Network Effect

Definition

The phenomenon whereby a service becomes more valuable as more people use it, thereby encouraging ever-increasing numbers of adopters.

Information

The network effect is often the result of word-of-mouth testimonials. The network effect can be perpetuated indirectly, as well, through analysis of a network’s size and projected growth.

While the word-of-mouth method is often more influential in the beginning, analysis may play a significant role later in the cycle. In other words, you may adopt a service initially because someone you know uses it; later, you may adopt a service because “everyone” uses it.

Synonyms

n/a

Related Terms

first-mover advantage

Sites

n/a

Articles

Network Externalities (Effects)
University of Texas at Dallas (1998)