Network Effect
 |
Definition of 'Network Effect'A phenomenon whereby a good or service becomes more valuable when more people use it. The internet is a good example. Initially, there were few users of the internet, and it was of relatively little value to anyone outside of the military and a few research scientists. As more users gained access to the internet, however, there were more and more websites to visit and more people to communicate with. The internet became extremely valuable to its users. |
 |
Investopedia explains 'Network Effect'The chief hurdle for any good or service which uses the network effect is to get enough users initially so that the network effects take hold. The amount of users required for significant network effects is often referred to as critical mass. After the critical mass is attained, the good or service should be able to obtain many new users since its network offers utility.If too many people use the good or service, negative network effects can occur, such as congestion. In the internet analogy, having too many users on the internet can hypothetically cause the speed to deteriorate, decreasing utility for users. Thus providers of goods and services which use a network effect must ensure that capacity can be increased sufficiently to accommodate all users. |
Related Definitions
Articles Of Interest
-
Neural Trading: Biological Keys To Profit
Learn about neural networks, which is software designed to simulate the human brain in order to make better trading decisions. -
Financial Professionals: The Benefits Of Joining An Association
Make a name for yourself among your industry peers by joining a professional association. -
Direct Access Trading Systems
DATs can dramatically speed up order execution - find out how this system gives novice traders an edge. -
Small Business: It's All About Relationships
Rather than be a jack-of-all-trades, an owner should rely on a network of trusted experts. -
Neural Networks: Forecasting Profits
Take a look at the algorithmic approach to technical trading - you may never go back! -
Mondelez Isn't As Good As Nestle, But Priced Like It Is
Investors seem to bullish on Mondelez, given the relative performance at Kellogg and Nestle. -
7 Unconventional Ways Businesses Can Borrow Money
Find out how your business can get the money it needs - even when the bank says "no". -
How Spring Cleaning Can Make You Money
Spring cleaning is a well-established tradition, but you can also make money by selling your unwanted goods. -
Should You Head Back To Business School?
Find out if an MBA is necessary for you to reach your professional goals. -
Women And Finances: Is There A Gender Bias?
Uncover some very complex reasons for female gender biases in the finance world.
Free Annual Reports
