Direct Network Effects: Consider a social media platform like Facebook. The more people join Facebook, the more valuable it becomes to each user. This is because you have more friends to connect with, more photos to view, and more updates to read. This is a direct network effect.
Indirect Network Effects: Take the example of a gaming console like PlayStation. The more people purchase the console, the more game developers are interested in creating games for it. This makes the console more attractive to potential buyers as they have a wider selection of games to play. This is an indirect network effect.
Platform Network Effects: Think about a marketplace like Etsy. The more sellers there are on Etsy, the more products buyers have to choose from, which attracts more buyers. Conversely, the more buyers there are on Etsy, the more sellers are attracted to the platform because they have a larger customer base to sell to. This is a platform network effect.
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Direct Network Effects — WTP rises with each additional customer who uses the product. Think of mobile phones or fax machines. Indirect Network Effects — Companies raise customer WTP through complements. As more customers purchase smartphones, developers will create more apps. Indirect network effects create chicken-and-egg scenarios. More charging stations are needed for more people to buy electric cars. But more cars are needed to make charging stations viable. To break this, companies will have to invest in complements like charging stations to spur network effects. Platform Network Effects — WTP increases for one group as the other group grows more prominent. On Amazon, WTP increases for customers as the number of sellers rises and vice-versa.
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