« Back to Glossary Index

Network Effect

The “network effect” refers to a phenomenon where the value and utility of a product or service (usually service) increase as more participants join. It becomes an intangible asset by creating a virtuous cycle of growth and engagement. As a user base expands, each additional user enhances the experience, attracts more users and amplifies the value of the wider network. This positive feedback loop can lead to increased customer loyalty, higher market share and greater barriers to entry for competitors. The network effect is a powerful driver of intangible asset value for modern companies (particularly online businesses) as it enables them to generate sustainable growth, quickly establish market dominance and ultimately create a valuable network that is difficult to replicate.