Network Effects

Network Effects is the phenomenon by which the value or utility a user obtains from a good or service increases with the number of users of compatible products. As more join, there can be a direct increase in the value to all other users, and an indirect effect from the marginal increase in the incentive for current non-users to use the product or service. Metcalfe’s law states that the effectiveness of a telecommunications network is proportional to the square of the number of connected users of the system. First formulated in this form by George Gilder in 1993, and attributed to Robert Metcalfe in regard to Ethernet connections.

« Back to Glossary Index