Question
Network effects can significantly influence the growth of a company's market share. When a product or service becomes more valuable as more people use it, this is known as a network effect. For instance, a social media platform becomes more attractive as more of your friends join it. Similarly, a marketplace like eBay or Airbnb becomes more useful as more sellers and buyers participate. This increased value attracts more users, creating a positive feedback loop that can lead to rapid growth and increased market share.
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While VCs want to see big numbers, many of the best companies had relatively modest markets to begin with. For example, eBay and Airbnb both thought their market shares were a lot smaller than they ended up being. Because of network effects, these platforms grew to scale well beyond the original estimates because they proved they could do the hard part: offer a service that solved a real problem for a small community. Then, they grew from there. For more insights like this, check out the great blog A16z wrote on the topic here.
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