Network Effects in SaaS : A Desired Moat (Part 1 of 3)

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.

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

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The best software businesses are networks. When every new user that joins makes the network more valuable for the other users, it leads to a sort of accelerating value and growth that is one of the most powerful forces in the world. Nobody can copy the value you provide, because the value isn’t derived from your functionality, it comes from your us... See more