{"id":33178,"date":"2017-07-13T01:00:53","date_gmt":"2017-07-13T05:00:53","guid":{"rendered":"http:\/\/quotulatiousness.ca\/blog\/?p=33178"},"modified":"2017-07-03T21:37:57","modified_gmt":"2017-07-04T01:37:57","slug":"qotd-what-are-network-effects","status":"publish","type":"post","link":"https:\/\/quotulatiousness.ca\/blog\/2017\/07\/13\/qotd-what-are-network-effects\/","title":{"rendered":"QotD: What are “network effects”?"},"content":{"rendered":"

Few buzzwords are hotter in tech circles than \u201cnetwork effects.\u201d This was so 15 years ago, when I was an MBA candidate grinding through job interviews; it is so today. Probably, when the heat death of the universe is imminent, and our nine-tailed descendants are trying to figure out what to do, some bright Johnny will suggest we can keep things going if we can just add another 2 billion stars to our user base.<\/p>\n

Don\u2019t get me wrong: Network effects are important, and I frequently talk about them in relation to everything from media companies to neighborhoods to choices about motherhood. But when I hear the term, the hairs rise on the back of my neck, because it’s often used imprecisely. People say \u201cnetwork effects\u201d when they are really talking about switching costs, or regulatory coordination, or spillover effects, or any number of other things that are at best tangentially related to what the network effect model was built to describe.<\/p>\n

Worse, far too many people seem to use the term the way college sophomores deploy the names of philosophers they have just read, in the mistaken belief that a piece of jargon can magically banish disagreement. Your firm doesn\u2019t seem to have a viable revenue model? You\u2019re just saying that because you don\u2019t understand network effects! Someone seems insufficiently worried about the market power of some technology behemoth? It must be because that benighted fool has never heard about network effects!<\/p>\n

Network effects are a useful concept, but not when deployed in this slipshod way. Worse, such careless routine deployment actually threatens the concept’s usefulness in conversations where it does offer real insight.<\/p>\n

So just what is a network effect? The term describes a product that gets more valuable as more people adopt it, a system that becomes stronger as more nodes are added to the network. The classic example of network effects is a fax machine. The first proud owner of a fax machine has a very expensive paperweight. The second owner can transmit documents to the guy with the pricey paperweight. The thousandth owner has a useful, but limited, piece of equipment. The millionth owner has a pretty handy little gadget.<\/p>\n

Megan McArdle, “Facebook Is Big, But Big Networks Can Fall”, Bloomberg View<\/em><\/a>, 2015-10-08.<\/p><\/blockquote>\n","protected":false},"excerpt":{"rendered":"

Few buzzwords are hotter in tech circles than \u201cnetwork effects.\u201d This was so 15 years ago, when I was an MBA candidate grinding through job interviews; it is so today. Probably, when the heat death of the universe is imminent, and our nine-tailed descendants are trying to figure out what to do, some bright Johnny […]<\/p>\n","protected":false},"author":1,"featured_media":35193,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[831,25,41,15],"tags":[1136],"class_list":["post-33178","post","type-post","status-publish","format-standard","hentry","category-business","category-economics","category-quotations","category-technology","tag-networkeffect"],"jetpack_featured_media_url":"https:\/\/quotulatiousness.ca\/blog\/wp-content\/uploads\/2016\/06\/favicon.png","jetpack_shortlink":"https:\/\/wp.me\/p2hpV6-8D8","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/posts\/33178","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/comments?post=33178"}],"version-history":[{"count":1,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/posts\/33178\/revisions"}],"predecessor-version":[{"id":33179,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/posts\/33178\/revisions\/33179"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/media\/35193"}],"wp:attachment":[{"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/media?parent=33178"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/categories?post=33178"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/tags?post=33178"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}