network effect


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network effect

The resulting increased value of a product because more and more people use it. Telephones, fax machines, computer operating systems and smartphones have been prime examples. A product's success is more about compatibility and less about its superiority to the competition. For example, Microsoft became hugely successful due to the network effect, because more and more people bought Windows PCs, and developers began to write programs for Windows only or at least much earlier than for the Mac version. In contrast, owing to the network effect, the company has also suffered, because although Nokia Windows Phones are excellent devices, they have a tiny market share compared to iPhone and Android, and fewer developers create apps for Windows Phones as a result. See tipping point and network externality.
References in periodicals archive ?
Economists began developing the theory of network effects in the 1970s.
Network effect technologies transform the CIOs work from making tactical technology decisions into building strategic platforms.
Network effects result when the value of a good or service depends on the total number of those using it.
From these findings, this study highlights the need to go beyond an examination of the network effect on economic measures of the organizations in alliances.
could not stimulate effectively the cross-sided network effect based growth of the platform.
A sufficiently insulated trading network will generate its own network effect, much like the dialect of an isolated community.
Like the other information technology (IT) markets that comprise the Internet ecosystem, broadband communications services are characterized by rapid innovation, declining costs, product differentiation, competitive price discrimination, network effects, and "multisidedness.
Again, we are focused on the overall network effect and not specific targets, be they positive actors whom we should reinforce or insurgents who should be removed from the network.
The authors noted that in the most recent survey, 39% of developers said that the network effect of all of Google's assets like search and Android "are more important to them than Facebook's social graph.
On the other hand, the firm will be able to appropriate some of the surplus generated by the network effect itself, which is present for any standard and thus does not affect the social incentive to change standards.
The relationship is complicated by its theoretical ambiguity: religion can both enhance and suppress economic activity in general, and its potential network effect can both create and divert trade.
Given that any standard conveys a network effect on the demand side, the industry can choose any standard or not choose among them (as happened for quite a while in the late 19 80s with LPs and CDs coexisting in the music market).

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