Tweet: Intro to Network effects (and learning effect)

 

The network effect is a phenomenon whereby increased numbers of people or participants improve the value of a good or service. This is particulary true in information technology industries where “winner-take-all is a norm.

A product displays positive network effects when more usage of the product by any user increases the product’s value for other users (and sometimes all users).

Good examples are Facebook, Twitter, Watsaap etc. The more people uses it the incentive for using it grows.

In an article titled “The Interaction of Learning Effects and Network Effects” investor @NickBeim talks about the dynamics of Learning effect in products with high network effect.

He writes “Network effects almost always create the opportunity for learning effects, as they involve the generation of ever more data in the form of new network members and interactions.”

 

Effect of network effect on Learning effects: the more a product learns, the more valuable it becomes.

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