Network Effects in SaaS : A Desired Moat (Part 1 of 3)
Network effect: occurs when a product or service becomes more valuable to users as more people use it (also known as: demand-side economies of scale)
- create barriers to exit for existing users and barriers to entry for new companies
- protect software companies from competitors eating away at their margins
- can help create or tip winner-take-all marke
Future • All about Network Effects
Network Effects are the foundation of many great Silicon Valley technology companies/ You need users to make a product work – network effects are the results of positively connecting people through technology which organically makes that technology better.
Tim Ferriss • #550: Andrew Chen — Metaverse, Metrics, and Meerkats
Network effects are defined as when the value of a company’s product or service increases as usage increases.That means the more users you have, the happier they are, and the cheaper it is to acquire new ones, which means your growth accelerates. Accelerating growth means exponential growth. You want to invest in and work at businesses that grow ex... See more
Uncharted Territories • Platforms and Aggregators
One important lesson here is that engagement matters to network effects. A first level understanding of network effects is that they occur when more users = more value for existing users. That’s true, but go one level deeper, and you realize it’s actually the amount of usage that matters.