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Course 205: Economic Moats | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The Network Effect | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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The network effect occurs when the value of a particular good or service increases for both new and existing users as more people use that good or service. It can also occur when other firms design products that complement an existing product, thereby enhancing that product's value. The network effect is arguably one of the most potent competitive advantages, and it can also quickly catapult firms to the lead in new industries. Adobe As if switching costs weren't enough, Adobe also benefits from the network effect. With more than 500 million copies downloaded, Acrobat has a foothold on computer desktops everywhere. As its network effect increases, and more designers and readers use Adobe's software, its position as a standard-bearer grows. eBay The cycle just continued to feed on itself, and now eBay is essentially the only real online auction site of size. It was able to capture this position even though some large, well-known, and well-financed Internet companies such as Yahoo YHOO and Amazon AMZN tried to make a frontal assault on eBay in the late 1990s with very little success. Next: Intangible Assets >> |
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