A network effect is present when the value of a product or service grows as its user base expands. Each additional customer increases the product’s or service’s value exponentially.
Example: Alphabet Inc.
Alphabet, with a global share of over 80%, leads the online search market. The company’s network effect comes primarily from its Google products, which includes search, Android, Maps, Gmail, YouTube and more. In Morningstar’s view, “Google has the world’s most widely used search engine, and such a large and growing user base has created a network difficult to replicate.”
Risk: Investors should consider risks before investing. See dedicated risk factors section on this website.