Page 76 - Marketing the Basics 2nd

68 Marketing: the Basics
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figure 4.1 The long tail NETWORK EFFECTS
A network effect is the impact that one user of a good or service has on the value of the product used by others. The impact can be both negative or positive, but more often, we tend to see positive network effects. The idea behind a positive network effect is that as the number of users of a network increases, the value of the network rises in proportion to the number of other users. Or, in other words, once a critical mass is attained, the marginal cost decreases for each additional customer. Because of the network effect, marketers can reach a global audience without paying a proportionately sized increase in the cost of delivering the content. Facebook is a great example of a service that is currently experiencing a positive network effect. As more and more people sign up for an account (200 million and counting in just five years), the easier it will be for members to get in touch with each other, thus, the more valuable Facebook becomes to each user. Another example of the network effect at work can be seen on Wikipedia. When it initially launched, they had seeded the site with contents from the 1925 Encyclopaedia Britannica, and left it up to the public to create the remaining content. Through crowd-sourcing, Wikipedia managed to fill the long-tail of the demand curve for encyclopaedic content, and is now either the highest or very close to the highest ranked website when you conduct a query using a search engine.
Popularity