Network effects

Network effects occur when a product or service becomes more valuable to each user as more people use it. A messaging app is far more useful once most of the people someone wants to reach are already on it, and a marketplace becomes more attractive to buyers as more sellers join, and vice versa.

This creates a self-reinforcing cycle: more users make the product better, which attracts still more users, often making it very difficult for a smaller competitor to catch up even with a superior product, since a new entrant has to overcome the value everyone already gets from being where everyone else is.

Network effects are one of the strongest sources of a moat, common in social platforms, marketplaces, and payment networks, since they can make an early leader's position self-sustaining long after any original product advantage has faded.