A “network effect” is an economic effect that identifies a product or service that adds value to the network as more people join it. When a network effect develops, each new user that joins the network adds value to the product. This, in turn, encourages more people to join the network, which makes it more valuable, and so on.
The telephone is a classic example of a network effect. In the early days of technology, only a few individuals had telephones in their houses. Furthermore, in order to access the network, their homes had to be physically linked to one another.
As technology advanced, more people could afford telephones, increasing the value of the entire telephone network. The value and usefulness of the whole network increased as the number of users increased. This led to a positive feedback loop in which the more people joined, the more value was added to the network itself. This increased usage resulted in exponential growth.
![Pinterest](https://pinterest.com/pin/create/button/?url=https://cryptoshrypto.com/what-is-a-network-effect/&media=https://cryptoshrypto.com/wp-content/uploads/2022/03/network-effect.gif&description=A "network effect" is an economic effect that identifies a product or service that adds value to the network as more people join it.){kind=link}