Network Effect

Network Effect is that a single person using a good or a service has on the total perceived value of that product or service for others. It means that if someone joins the network, it has benefits for the rest of the users. It is applied most commonly to positive network externalities as in the case of the telephone. The larger the group of people with access to a telephone, the more valuable the phone itself is to the people who use it; and the more people who join a social network, the more valuable the site is for the people who belong. Network Effect also called network externality.