Are Network Effects Building Innovation or Killing It?

When we look at apps in the App Store, you see some apps suddenly rise in the rankings while others quickly disappear. A big reason for this is called network effects. This means that the more users an app has, the more valuable it becomes.

An example of this is WhatsApp. If only two of your friends were using it, you probably wouldn’t bother. But now that almost everyone is on WhatsApp, it’s not just an app anymore—it’s the way to communicate, and people almost expect you to use it.
We see this everywhere. Uber works better when there are more drivers and riders on the platform. Vinted is only valuable when there are enough buyers and sellers. Even in social media, you see network effects: why would you be on Instagram if no one is posting?

But these network effects can also have a negative influence on the market. Once an app like WhatsApp becomes this big and everyone uses it, it is extremely hard to compete with. New apps might come with good ideas, but once they can’t attract enough users, they already fail before they really had a chance.

A result of this can be a monopoly. One single platform can dominate the market so strongly that there is no room left for competitors. On the other hand, monopolies can make services more stable and convenient for the users. In the case of WhatsApp, it’s easier when all your conversations are in the same app.

That’s why network effects are so powerful. They can create great success stories and really add value for users. But they can also lock markets into monopolies that are difficult to change. Do you think monopolies caused by network-effects are a good thing or a bad thing for users in the end?