ReadWriteWeb

The Internet economy has been built on the network effect (i.e. the effect that one user of a good or service has on the value of that product for other people). Investors and entrepreneurs have treated this like Moore's Law. But just as Moore's Law hits physical constraints, network effects have a limit in many types of online communities. Indeed, in some cases, a reverse network effect may exist: as new people join, others are motivated to leave. This dramatically affects the length of the competitive advantage enjoyed by these ventures. In this post, we'll look at which ventures suffer from reverse network effects, which don't, and which may suffer depending on the strategy they choose to adopt.