Strategy · business glossary
What is Network effect?
By Shivam Bhandari · Reviewed 31 October 2026 · How we write
definition
A property where a product becomes more valuable to each user as more people use it.
Network effect explained
A network effect is when a product becomes more valuable as more people use it.
example
A marketplace becomes more useful to buyers as more sellers join, and vice versa.
why it matters
Network effects can create powerful, self-reinforcing moats.
common mistake
Assuming every platform has network effects — many don't.
Frequently asked questions
What is Network effect?
A property where a product becomes more valuable to each user as more people use it. A network effect is when a product becomes more valuable as more people use it.
Why does Network effect matter?
Network effects can create powerful, self-reinforcing moats.
What is a common mistake with Network effect?
Assuming every platform has network effects — many don't.
Related terms
Moat
A durable competitive advantage that protects a business from being easily copied or displaced by competitors.
Scalability
How easily a business can grow output or revenue without a proportional increase in cost or complexity.
First-mover advantage
The temporary edge gained by being the first credible entrant into a new market or category.