‘Network effects’ are nothing unique to digital industries, and they’re already very well-known in the aerospace and telecommunications sectors. But the characteristics at the heart of digital companies – connectivity, generativity and modularity – make the effects here so much more tangible than in other areas.
Network effects also help maintain the defensive positions of some companies and can lead to quasi‑monopolies, ‘winner takes all’ situations, as is the case for Amazon and Uber, for example. The case of Amazon, as explored in the video, perfectly illustrates the results of a recent venture capitalist survey that found network effects accounted for 70% of value created in technology companies.
By Thierry Isckia, Professor of Strategic Management and Innovation Management at IMT-BS.