TechRepublic – The importance of network effects for cloud computing

Takeaway: Thoran Rodrigues explains “network effects,” which is the effect that users have on the popularity and reach of a service or product. Will cloud computing break some of these traditional networks?

Network effects are some of the strongest forces in the world of technology today. They are partly responsible for the success of both traditional software, such as the Windows OS, and of services such as Google and Facebook. But what exactly are these network effects? As Wikipedia tells us, a network effect is the effect that the user of a service (or product) has on the value of the service (or product) to other users. Social networks such as Facebook are the quintessential example: the more users are in a network, the more valuable that network becomes, both for participating users and for potential new ones. After a while, people join the network simply because everyone they know is there.

Companies are always keen on exploiting network effects since they create a subtle form of lock-in. Users won’t change networks unless a significant percentage of people change first, so it is much harder for new players to enter the market. This was recently demonstrated by Google+. In spite of Google’s brand and marketing power, only a small percentage of users effectively adopted this new social network. The user’s viewpoint is this: “All my friends are on Facebook, so I’ll only go to Google+ if they go too.” But their friends will only go if all their friends’ friends go, and so on.’

More of the TechRepublic post from Thoran Rodrigues

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