WHAT IS NETWORK EFFECTS?

A network effect (sometimes known as a network externality) is a process whereby a service becomes more valuable the more people use it. Its usually involving new technologies and websites. The network effect is usually the product of word-of-mouth testimonials, which causes other to investigate and then get involved.

Reverse Network Effects!A lot of the internet economy has been constructed around the network effect. As with everything network effects have a limit, and in some cases reverse network effects can occur. New people join participatory sites such as facebook and linkedin everyday, and for what ever reason more people also choose to leave, this envitablly will lead to it reaching its peak in popularity with the number of new members, and having more people leave or stop using their accounts. An obvious reverse network effect is, having too many people in your social network, thus not being able to keep in contact with them.

Network effects simply makes quality better!

Examples of network effects:

Direct Examples:•An old network effects example is the fax machine , where it got so popular by having people buying it. In that way the interactionbetween people who had fax grown bigger andbigger.•An example of the direct network effect is the extensive use of Microsoft. It built up popularity, and because of the popularity, software companies began to make their software so that it is compatible with Microsoft, because this was most widely used. Therefore, this helps Microsoft, as it means that if people want to use certain software they must have that operating system, and collaborates to increase users.

•A network effect in business example is eBay on of the most powerful advertising web pages on the internet.

NETWORK EFFECTS

Another example of network effects on Web 2.0 is the msn hotmail which is an application that everyone use. It was given more value as more people started to use it.

This diagram shows the web , it defines the different types of connections such as wikis , blogs , social network who is us people , and also the group activities. Furthermore it states the mechanisms that are being use on the web and what is the value target of the web which finally induces us to the network effects.

Indirect examples • Complementary goods are cheaper or more available when many people adopt a standard. Toner may be cheaper for widely used printers. An example of this is that Windows and Linux can be seen as competing not for users, but for software developers.

Advantages• The advantages of the network effects on Web 2.0 are the following:

1. We may find inspiration, fun and profession on the web.2. The network effect improves data.3.People interact with the generally the whole world , communicate and share their thoughts with other people.4.Promotes advertising and social services.

5. If a site or service on the internet is the first of its kind, it can gain instant popularity, and therefore will always be ingrained into the minds of the users. For example, even if newer sites offering the same service are introduced, users still tend to go back to what they used originally, and what has more popularity already. Early entry into a specific market can gain an advantage.

6. If more people use a social networking site, for example Facebook, the more people want to join it. Facebook is the type of site which needs lots of users for it to be worthwhile to join, and if a group of friends are already using it, it is more likely that someone else will. This is also true of eBay; it is what it is because of the users.

DISADVANTAGES

The disadvantages of the network effects are the following:

1. Web companies have a field day catering our need to share and discuss what we are doing.2. Quality over quantity3. Instead of searching ourselves we let others deal with that. 4. We end up listening and engaging with a much smaller fraction of the group of followers.

More Disadvantages...• An example of the disadvantages that can arise from the network effect is

the growing use of Facebook, and the amount of friends each user has. The original idea of Facebook was that it was a place where all of a person’s friends were gathered in one place, and the fact that it made it easy to contact them. It was also meant so that as people perhaps lose everyday contact, they will still be able to keep in touch. However, with the rapid growth of friends on Facebook, it is easy to get overwhelmed by the sheer amount of people, and it can be hard to continue with close relationships. Therefore it can have a reverse effect to that which it was originally meant for.

• The growing network effect can mean that new sites or services (which may indeed be better/more improved than the leading site of that kind) do not have a chance to grow.

• The site or service provider can tend to focus more upon gaining more users than keeping the users they already have happy.