Network effect is an important term in the areas of digital transformation, digital marketplaces, eCommerce and digital commerce. It describes the fact that the benefit of a product or service for each individual user increases the more people also use this product or service.
This means that the more people use a certain platform, for example, the more valuable it becomes for everyone involved. An illustrative example is a social network such as Facebook or LinkedIn. If only a few people are registered there, the network is of no interest. Only when many friends, acquaintances or business partners are on it does the platform become really useful - for socialising, exchanging ideas or job opportunities.
The network effect can also be found in online marketplaces such as eBay or Amazon. The more buyers and sellers are active there, the greater the selection, the variety and the chances of good trade for all sides.
A strong network effect can result in one provider becoming very dominant and new competitors finding it difficult to gain a foothold at all. This is why the network effect is an important success factor, especially for digital business models.
Deutsch 
English (UK)