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One phone is worthless. Two are a connection. Billions are a monopoly.

With network effects, a product gets more valuable the more people use it. Messengers, social networks and payment services work this way. Metcalfe's rule of thumb: a network's value grows roughly with the square of its user count. That's why platforms give everything away early and later dominate almost unchallenged.

Useful: A better product isn't enough to beat a platform; you need its users.

Source: de.wikipedia.org

GeschaeftsmodellPlattformUnternehmen

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Question on this card

What does Metcalfe's rule of thumb say about networks?

  1. Value grows linearly with users
  2. Value grows roughly with the square of the user count
  3. Value declines past a certain size
  4. Value depends only on price
Show the answer

Correct: Value grows roughly with the square of the user count

Each new user can connect with all existing ones, so value grows faster than the user count.

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