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What is a network effect? All about Google

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What is a network effect?

• A network effect describes how a service becomes more valuable to its
users as more people use that same service




Phone’s utility is limited if The utility for a user According to Metcalfe’s
the network is composed raises if the network law, the utility(U) of a
of 2 users broadens network is proportional to
the square of the number
(n) of its users
U ≈ k*n2




Network effects creates critical masses of users.
They represent significant barriers to entry for competitors.


..…….

December 2008 • Everything you always wanted to know about Google… • 27

Publicado en: Tecnología, Empresariales
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