What Is the Network Effect and Why It Matters to Social Media

I read an excellent article the other day called "The End of the Twitter Era" and the author made an excellent point about how the network effect impacts the life and death of social media platforms (both past and present).

I've been thinking a lot about how the role of network effects recently, and it's something which is often overlooked for the average social media, yet it has such a big impact on our experience on social media.

And so, in this blog post I plan to outline what the network effect is, discuss why it matters along with some of the risks and challenges.

What Is the Network Effect?

In the context of economics, the network effect describes the process in which a product or service becomes more valuable as more people use it. Wikipedia defines the network effect as...

 the phenomenon by which the value or utility a user derives from a good or service depends on the number of users of compatible products

In social media, the network effect means that as more people join a platform, its value grows. Each new user contributes content and forms new interaction, making the platform more appealing to others. In other words, the value of the network increases with the number of users and connections.

Think of it like this, imagine a social network with communities similar to the ones shown below, where nodes represent users and directed edges represent interactions.

The dense graph community to the left has more value and appeal to others compared to the sparsely-connected graph on the right, which has fewer interactions.

Why It Matters

The network effect is important for platforms for various reasons, but the main factor is growth. The network effect attracts more users as the platform becomes more valuable with each new member.

This is something which Bluesky is experiencing as of this writing. Bluesky suddenly becomes more attractive when the big players like Alexandria Ocasio-Cortez, Mark Hamill and "Weird Al" Yankovic start joining and using the service.

It's essentially a positive feedback loop producing a snowball effect, fuelling continuous expansion and retention.

As a result, this increases engagement. More users lead to more content, conversations, and interactions which keeping people active on the platform. This gives them a competitive advantage as platforms with strong network effects are harder for competitors to disrupt.

This also opens up opportunities for monetisation as an engaged user base attracts advertisers, partnerships, and developers.

Risks and Challenges.

All these factors described are not without their downsides. Network effects create some real challenges for those looking to compete in the industry.

Monopolisation is the biggest threat where dominant platforms can stifle innovation. This can make users feel like they are trapped on a platform with nowhere else to go (the issue known as “walled gardens”).

This also creates barriers to entry as smaller or new platforms struggle to compete against established platforms with strong effects.

Furthermore, these platforms can experience overcrowding with excessive users and may lead to lower quality content, reduced user satisfaction or, even worse, lead to the development of echo chambers creating polarisation and limit diverse perspectives.

Conclusions

Network effects play an important role in the growth and global recognition of a platform.

Ultimately, it’s the users and the underlying social network which makes the platform more valuable and attractive to others.

As of this writing, we’re starting to see this phenomenon take place on decentralised platforms such as Bluesky and Mastodon (the Fediverse). As more users join the network and participate, these platforms gain more momentum for growth.