# Every New User Makes It Better

> Network effects, and why some products get more valuable the more people use them.

Strategy · 2026-10-08 · by Manas Jain · https://samanar.in/a/network-effects

A phone is useless if you own the only one.

Two phones make **one** possible call. Five phones make **ten**. A hundred phones make **4,950**. The phone itself didn't get any better. The *network* did.

That's a **network effect**: a product becomes more valuable to each user as more people use it.

## The maths behind it

With *n* people, the number of possible connections is n × (n − 1) ÷ 2. Users grow one at a time. Connections grow much faster, roughly with the square of the number of users.

This is often called **Metcalfe's law**, after Robert Metcalfe, co-inventor of Ethernet. It's a rough rule rather than a law of physics, because not every connection is equally useful. But the shape is right: each new member adds a little value for *everyone* already inside.

## Two flavours

**Direct network effects.** More users of the same kind make the product better. WhatsApp is the classic case. You probably don't use it because it's the best messaging app. You use it because your family group is on it.

**Two-sided network effects.** Two different groups make each other more valuable. More riders bring more drivers to a ride-hailing app, which means shorter waits, which brings more riders. More shops accepting UPI make it easier to leave your wallet at home, which pushes even more shops to accept UPI.

## Why it matters in business

Network effects build a **moat**. A rival can copy your features in a month. They can't copy your users.

That's why a messaging app with better features still struggles. Switching alone is pointless. Your whole circle would have to switch together, and that almost never happens.

It also explains why these companies spend so heavily early on, with cashback, free rides and zero fees. They aren't just buying customers. They're buying *the network*, and once it exists, the network sells itself.

## The catch

Network effects also run in reverse. When people start leaving, the product gets worse for everyone who stays, so more people leave. Orkut was huge in India in the late 2000s. Once friends moved to Facebook, it emptied fast.

Getting started is brutal too. A network of ten people is worth almost nothing, so the hardest problem is the **cold start**: making the product worth using before the crowd arrives.

> A good product attracts users. A network effect turns those users into the product's best feature.