Network Effects

Imagine a new neighbourhood is being built and two kids each set up a lemonade stand trading card club. You can only trade cards with other members of the same club. Club A has three kids. Club B has thirty. You join Club B, obviously, because thirty trading partners means more chances to find the rare card you want. And now that you have joined, Club B has thirty one members, which makes it even more attractive to the next kid choosing. Club A still has three members, and every day the gap gets wider. Nobody made a grand strategic decision. Each kid just picked the club where they could do the most trading. This self-reinforcing loop is the most powerful force in modern business. Every new user makes the product more valuable for every existing user. WhatsApp is useful because two billion other people are on it. Uber works because enough drivers are on the platform to guarantee a ride within minutes. Airbnb has listings everywhere because travellers go there first, which attracts more hosts, which attracts more travellers.