Network effect
A phenomenon in which the value of a product or service increases as the number of users grows. The effect can be direct (each additional user benefits everyone) or indirect (the platform attracts complementors that improve the overall offering).
In practice
Network effects create self-reinforcing dominant positions: WhatsApp is valuable because everyone uses it, making it socially costly to abandon. In B2B, indirect effects are more common: a marketplace with 10,000 buyers attracts more sellers, who attract more buyers. The key measurement is the organic referral rate — the share of new customers who arrive via existing customers without a financial incentive. A rate above 20% indicates an active network effect.