Network Effect

The famous paradigm: one phone in the world isn't worth much.

Like, who would you call? (Not a line from Ghostbusters.) But if there are two phones then yeah...useful. One in the White House, one in the Kremlin. At least that's a start.

So what if everyone had a phone? Well, then the value of each individual phone goes up exponentially, and you have network effect.

Apply this notion to a social network: Facebook. Were the site only sparsely populated (hello, Myspace), then it would have little value to most using it. But with "everyone" on there, it has a network effect. The challenge is that network effects are fragile. For a short period in history, AOL had that network effect through their chat service. Which died. And AOL died. Wonder if Facebook reads history books.