Network effect relates to the relationship between goods and services and users. The higher number of users are out there, the higher is the value of the goods and services. The most famous and popular example of these phenomena is social media giant Facebook. In Facebook’s case, the social media provider was increasing its user base year after year, and its profits also were increasing. Higher user base gave Facebook an opportunity to reach an unprecedented amount of people. The more user the company had, the more ads were sold. An ad campaign targeted for a million people and an ad campaign targeting a billion people is not the same, and the profits are also huge. Not only Facebook but all stakeholders in these example benefited from the network effect. Facebook is the obviously main beneficiary. Other than Facebook, companies who used its marketing services were able to advertise and sell their product and service to billions of customers. And from the customers side they were also able to pick between those products since advertisements were from different sources.
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Hello Levan, I thought your analysis on Facebook was great in how they grew and then, generated more money and grew the amount of users on the site. I will add though that with Facebook, many companies followed in their footsteps in terms of the social media game. New applications such as Twitter, Snapchat, and more followed Facebook’s blueprint and it also worked for them tremendously.