What is a Network Effect? 4a

The network effect is how the indirect value of a good or service rises as a result of more people using it. In my opinion social media networks are some of the most obvious examples with Facebook leading the way. As its number of users increases, so do its profits. To continue its profitable climb, Facebook has to do one of two things, increase the price of their advertising, or lower their operating costs. The organization has a strong case to raise their advertising costs, because as the number of users rises, that means that there is a larger number of individuals who are being exposed to these advertisements. However, the network effect is not simply confined to the internet. This is also applicable in the case of Deer & Co’s green and yellow tractors. Due to its popularity and generations of reliance, this tractor is more likely to resell at a higher rate than another tractor of a different brand. Another relevant example of the network effect is through food delivery services. Due to the pandemic, the number of individuals using a food delivery service skyrocketed, therefore increasing the value of the service. Today there is rarely a restaurant that does not utilize these services. Another example of the network effect is recruiting databases. With the large number of layoffs that occurred due to COVID-19 and the overall transformation of the job market, individuals have placed more importance on work life balance and personal fulfillment. This is resulting in more recruiting sites like Glassdoor, Indeed, and LinkedIn being utilized to find jobs that are both financially and personally fulfilling. I would be interested to see how social media influencers have impacted certain products/companies and if one post resulted in a network effect?