Tell me more about indirect network effects please using simple l

Indirect network effects occur when the value of a product or service increases for its users as more people use complementary products or services. This is different from direct network effects, where the value increases as more people use the same product or service.

For example, consider the case of smartphones and mobile applications. As more people buy and use smartphones, more developers are motivated to create and improve mobile applications. This in turn makes smartphones more valuable to their users, because they now have access to a wider range of applications. This is an indirect network effect.

Another example is the case of video game consoles and video games. The more people own a particular console, the more games are developed for that console, making it more attractive to potential buyers.

In both cases, the value of the product (smartphones, game consoles) increases not because more people are using the same product, but because more people are using products that complement it (apps, games).

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Can you explain in simple terms and provide more examples of this?

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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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Tell me more about indirect network effects please using simple language and examples from business.

2 questions and answers

This question was asked on the following resource:

Better, Simpler Strategy