Network Effect

The network effect is when the value or utility of a product is dependent on the number of its users (or users of compatible products).

Direct network effects

When people talk about the network effect, they are generally talking about thinking of the direct variety like we see in social media services. This is when a user's value or utility from a product increases with the number of other people using the product/technology. This does not include effects on pricing, such as price discounts as more users join.

Examples: Facebook, Twitter, Airbnb, LinkedIn, Paypal, etc. or devices such as the telephone.

Indirect network effects

Indirect network effects, also called cross-side or cross-group,

Indirect (or cross-group) network effects arise when there are "at least two different customer groups that are interdependent, and the utility of at least one group grows as the other group(s) grow".[4] For example, hardware may become more valuable to consumers with the growth of compatible software.