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Network Effects, Deep-Dive: Direct, Indirect, and When They Reverse

Business Analysis • Beginner Investing • 7 min

A network effect is often described as the strongest kind of moat, because unlike most competitive advantages, it gets stronger simply as a byproduct of success — more users make the product more valuable, which attracts even more users. There are two distinct forms worth telling apart. A direct network effect means value rises as more people join the same side of the network — a messaging app is more useful the…

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