Network Effect and Large Networks
Today’s era is remarkable with booming technologies, and these technologies have made it possible to connect people globally. The Internet has created this enormous web or network that connects people globally. The internet has a lot of value because of the huge number of users in it. This is called the “Network Effect” and it basically means that the effect that one user of a service has on the value of that service to other users who may use the service.
The article discusses how EBay, an online website where items are sold in auctions, became successful through network effect. EBay was one of the first companies during the early age of internet and that gave them the edge to first build a unique network of buyers and sellers. EBay grew with a positive effect because buyers would benefit more from more entry of sellers, and sellers would also benefit more from entry of more buyers. Then, with additional entries of buyers and sellers combined, EBay as a site became more attractive to potential new users.
We can think about why EBay is still the most popular site to buy items by bidding or to sell items quickly through auctions. Why is it that Amazon or some other big company couldn’t take the lead over EBay in online auction market? With some basic reasoning, it can be concluded that EBay won the slot for most popular online bidding website. What EBay does is it asks users to enter their maximum bid and EBay automatically bids incrementally (known as proxy bidding) on the user’s behalf; this acts as second price auction. EBay won not because it just started early, but because EBay’s unique design structure promoted a positive network growth.
Network Effect
Link to the article: https://digit.hbs.org/submission/ebay-the-perfect-storey-of-network-effects/