← Business Models: Core (all topics)
Network effects & user acquisition
What it is
Classifieds, marketplaces and platforms become more valuable as participants join, so scale is self-reinforcing once critical mass is reached. Below that threshold, user acquisition cost consumes the economics
Subscription and listing fees provide recurring revenue that transaction take-rates do not
Impact on industries
- Past critical mass, operating leverage is extreme - incremental users cost almost nothing to serve and network value rises for everyone
- Subscription and listing revenue is recurring and predictable, unlike advertising or transaction fees that track activity
- Below critical mass, user acquisition cost is the whole business and is bid up by competitors funded to lose money
- Global platforms cap what domestic players can charge for advertising, and hit-driven gaming economics sit oddly alongside network-driven ones