The network effect describes products and services that benefit from the economy of scale. The more something is manufactured, consumed, used, the more valuable or the more efficient it gets. As a result the more customers such a company has, the more valuable they get. In other words: Production costs are growing linearly, but the perceived value is growing exponentially. Alternatively: Costs stay fixed for a potentially unlimited amount of users. ## Driver: Interaction between users One way of achieving this is if the core offering is users interacting with other users. The more users are on the platform, the more users they will attract and also making it harder for individual users to leave without losing access to their network. Social networks are a good example here, but also massive multiplayer games. ## Driver: Learning systems If a product or service gains insights and knowledge from each user, then adding more users would make it more relevant for everyone. An example would be recommendation engines like Spotify or algorithmic / [[Machine Learning]] services like predictive maintenance. In most cases those products and services increase value by each individual use, not just user. ## Driver: Economy of scale Each user might be a customer of a physical good. Assuming that the production costs of each individual unit gets cheaper the more units you can produce overall, having more buyers adds more value to all individuals. This is used by shopping clubs that would test user interest and only order / produce once a critical mass has been found. Crowdfunding also works similarly. ## Beyond core products But even beyond their core products an organization can use network effects. A typical example are community-like features in and around the brand: User reviews, owner clubs & communities, loyalty programs and so on. ## Benjamin Button Products -> *From the Prof G Strategy Sprint* This is an analogy used by Scott Galloway to describe products that benefit from a network effect and "age in reverse", based on the book by F. Scott Fitzgerald "The Curious Case of Benjamin Button". Most products age and decay, losing value over time. For cars and other bigger products it's depreciation, for consumables, it's pretty much 100% once opened. In the case of Benjamin Button products, these get more valuable over time / each time they are used instead of less. With network effects, each additional user would add value to a product or service, thus increasing it's value over time.