Editing Network effect (section)

===Web sites===
Many [[web site]]s benefit from a network effect. One example is web marketplaces and exchanges. For example, [[eBay]] would not be a particularly useful site if [[auction]]s were not competitive. As the number of users grows on eBay, auctions grow more competitive, pushing up the prices of bids on items. This makes it more worthwhile to sell on eBay and brings more sellers onto eBay, which, in turn, drives prices down again due to increased supply. Increased supply brings even more buyers to eBay. Essentially, as the number of users of eBay grows, prices fall and supply increases, and more and more people find the site to be useful.

Network effects were used as justification in [[business model]]s by some of the [[dot-com company|dot-com companies]] in the late 1990s. These firms operated under the belief that when a new [[Market (economics)|market]] comes into being which contains strong network effects, firms should care more about growing their [[market share]] than about becoming [[Profit (accounting)|profitable]]. The justification was that market share would determine which firm could set technical and marketing standards and giving these companies a [[first-mover advantage]].<ref name="Jones, Garett">{{Cite book |title=The new Palgrave dictionary of economics |author=Jones, Garett |isbn=978-1-349-95189-5 |edition=Third |location=London |oclc=1029103812}}</ref>

[[Social networking]] websites are good examples. The more people register onto a social networking website, the more useful the website is to its registrants.<ref>{{cite journal|last=Belvaux|first=Bertrand|title=The Development of Social Media: Proposal for a Diffusion Model Incorporating Network Externalities in a Competitive Environment|journal=Recherche et Applications en Marketing - English Version|year=2011|volume=26|issue=3|pages=7–22|doi=10.1177/205157071102600301|s2cid=168202506}}</ref>

Google uses the network effect in its advertising business with its [[Google AdSense]] service. AdSense places ads on many small sites, such as [[blog]]s, using Google technology to determine which ads are relevant to which blogs.  Thus, the service appears to aim to serve as an exchange (or ad network) for matching many advertisers with many small sites. In general, the more blogs AdSense can reach, the more advertisers it will attract, making it the most attractive option for more blogs.

By contrast, the value of a news site is primarily proportional to the quality of the articles, not to the number of other people using the site.  Similarly, the first generation of [[search engine]]s experienced little network effect, as the value of the site was based on the value of the search results. This allowed [[Google]] to win users away from [[Yahoo!]] without much trouble, once users believed that Google's search results were superior.  Some commentators mistook the value of the Yahoo! brand (which does increase as more people know of it) for a network effect protecting its advertising business.