Network Effects

The phenomenon by which a product or platform becomes more valuable to each user as the number of other users increases. In an ecosystem of complements, two types of network effects operate: user-side effects (more merchants attract more app developers, and vice versa) and data-side effects (more transaction data improves recommendation quality). Once a platform achieves critical mass, the value of its ecosystem makes it difficult to displace, because leaving means abandoning not just the core product but the entire network of complementary tools, integrations, and relationships.

Example: Shopify's App Store hosts over 8,000 apps; merchants who have installed several apps face a high switching cost that keeps them loyal to the platform.