Session 3 - Google Car

Definition of Network Effects

Three key terms:

• First mover advantage
• Winner-takes-all
• Chicken & egg problem

First Mover Advantage

An advantage gained by a company that first introduces a product or service to the market. The first-mover advantage enables a company to establish strong brand recognition and customer loyalty before other entrants to the market.

Note, first mover advantage is a temporary effect, and if you don’t seek to maintain it, it will shrink. Example, look at Zoom and how they’re shrinking.

Winner-Takes-All

A winner-takes-all situation happens when a company dominates a market so thoroughly that competitors have little opportunity to succeed.

For example, YouTube has become a dominant platform for video uploads, while TikTok holds a similar position for short-form videos.

Chicken & Egg Problem

This is a challenge with a two-sided network. You want to get both the customers and the producers onto the platform, but the producers won’t come there until the consumers do and vice versa.