(Excerpt from Modern Monopolies by Alex Moazed and Nicholas L. Johnson)
network effects are a double-edged sword. Successful platforms are very hard to compete against, but the same network effects that drive growth also make platforms much harder to build.
Initially, however, for most users the cost of joining a platform exceeds the value they can get out of it. In fact, the value of joining the network is often negative early on—the cost to users of signing up and entering information is more than the value they receive for joining and being a part of the network. Joining the platform technically might be free, but other forms of transactions costs, such as time and effort spent signing up, still drive users away.
The goal is to reach the point where the value of the network will exceed the cost of joining for most users… this point is called critical mass. This dynamic is why most successful platforms have a hockey stick–shape growth curve. It’s easy to understand this shift from pre- to post-critical mass if you think of a network like a magnet. When a network is small, its magnetic force repels new users. But once the network reaches sufficient size, that magnet flips and reverses polarity. Suddenly it starts to pull in new users, and the platform’s growth takes off.