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The winner takes all fallacy and the structure of network effects
The winner-takes-all phenomenon in business is appealing. All entrepreneurs dream of their products being used by everyone in the market. Large tech companies such as Microsoft, Facebook, Uber, Amazon, and Netflix derive their massive valuations by dominating their respective markets. How did they achieve this dominance, and do new startups have a chance against them?
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<p>The 'Network Effect' is a phenomenon whereby a good or service becomes more valuable when more people use it. When a network effect is present, the value of a product or service is dependent on the number of others using it. Over time, positive network effects can create a bandwagon effect as the network becomes more valuable and more people join, in a positive feedback loop. This section will highlight techniques to achieve the critical mass required to achieve this effect and stories about companies that have successfully done it.</p>