Verkkovaikutus

Verkkovaikutus, also known as network effect or network externality, is a phenomenon where the value or utility a user derives from a good or service depends on the number of other users of the same or compatible good or service. In simpler terms, the more people use something, the more valuable it becomes for everyone. This effect is particularly prominent in technology and communication platforms.

There are two main types of network effects: direct and indirect. Direct network effects occur when the value of a service increases directly with the number of users. Examples include social media platforms like Facebook or messaging apps like WhatsApp, where the usefulness of the platform depends on how many friends or contacts are also using it. The more users, the more people you can connect with.

Indirect network effects, also known as two-sided network effects, arise when the value of a platform for one group of users increases with the number of users in another group. A common example is a marketplace like eBay or an app store. For buyers, the value increases with the number of sellers offering products. For sellers, the value increases with the number of buyers seeking their goods.

Network effects can lead to "winner-take-all" or "winner-take-most" markets, where a dominant platform emerges due to its established user base. This can create significant barriers to entry for new competitors, as they struggle to attract users away from the incumbent's established network. Understanding network effects is crucial for businesses operating in digital economies, as it influences product design, marketing strategies, and competitive dynamics.