Network Effects

Core Concept

Network Effects are various theories about how networks gain in value.

Metcalfe’s Law theorizes that the vale of a network increases proportional to the square of its users.

Reed’s Law theorizes that large networks (including software applications, such as social networks) increase in value exponentially when their subgroups have reduced adoption friction.

Further Exploration

• Network Effects in the Metaverse. Centralized platforms vs. those that allow for open, emergent innovation; scale-free networks; Metcalfe’s and Reed’s Law.

• The Moat Map, by Ben Thompson. Internalized vs. externalized (e.g., Facebook vs. Microsoft) network effects.

• The Network Effects Manual: 13 Different Network Effects (and counting) by James Currie

• The Blockchain Effect: Network Effects without Market Power Costs by Cathy Barrera.

• Emergence an NPR Radiolab special that explains how complexity can arise in leaderless systems (such as scale-free networks that enable creativity).