Platforms and Aggregators

Network effect: occurs when a product or service becomes more valuable to users as more people use it (also known as: demand-side economies of scale)

• create barriers to exit for existing users and barriers to entry for new companies


• protect software companies from competitors eating away at their margins


• can help create or tip winner-take-all marke

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Today’s dominant internet platforms are built on aggregating users and user data. As these platforms have grown, so has their ability to provide value — thanks to the power of network effects — which has enabled them to stay ahead.

However, it’s also true that a lot of network-based utility only is realized at some level of scale. (As per NFX: “The simplified definition of network effects is that they occur when a company’s product or service becomes more valuable as usage increases.)