Question
Network effects contribute to the success of companies like Apple and Amazon by increasing the value of their products or services as more people use them. This can lead to a tipping point where adoption becomes nearly universal. For example, as more people use Amazon's marketplace, more sellers are attracted to it, which in turn attracts more buyers. Similarly, as more people use Apple's devices and services, more developers are incentivized to create apps for the Apple ecosystem, which then attracts more users. This creates a positive feedback loop that can lead to rapid growth and dominance in the market.
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In markets with strong network effects, customer WTP rises as the adoption of the product increases. Network effects can lead to tipping points, from low adoption to universal acceptance in a short period. In 2010, mobile payments had not taken off in China. Within a decade, three-quarters of the Chinese population prefers mobile payments to cash, and many retailers have stopped cash entirely.
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