network effects!

If there is one defining mental model for tech business models over the last thirty years, it’s the concept of network effects!

Indeed, since the mid-1990s, tech businesses have been able to start leveraging the compounding effects of a service when more and more people joined in, thus unlocking economies of scale.

While this was known in the physical world, it was more counterintuitive to transpose it into the digital/tech business world.

In fact, while network effects might seem like the equivalent of economies of scale in the physical world, there is way more to them.

In addition, not all network effects are actually good.

As I’ll show you at the end of this issue, there is also the negative side of network effects, which can be as bad as the positive side.

A network effect is a phenomenon in which the more people or users join a platform, the more the value of the service offered by the platform improves for those joining afterward. Imagine the case of a platform like LinkedIn.

Each additional user joining enriches the online resume, making the platform more valuable to recruiters, as they can easily find qualified candidates.

That sounds simple, right? Wait, though… let me explain why it’s not, but first, a visual representation of all I’ll cover in this issue!