This is no different from the network effect of the telephone — if no one else owns a phone, your phone and the system is of little value, but the value will increase exponentially with each additional phone user to the network. Naturally, it leads to monopolies. The long-term consequences were that these entities were dismantled by rules and regulations that promote competition.
SINGAPORE (Apr 29): A significant portion of the value we have seen created in technology has been credited to the network effect (or positive feedback loop) associated with digital platforms. Think Facebook, Apple, Amazon.com, Google (owned by Alphabet), Alibaba Group Holding and Tencent Holdings, all of which have cemented near-monopolistic positions in their respective businesses and generated hundreds of billions in value for shareholders.
The textbook definition of a network effect is a scenario where each new user added to the platform enhances the experience for all existing users and gets value back in return. Hence, users beget more users.
