Designing for Momentum: Lessons from Network Effects
One of the most fascinating dynamics in the digital economy is network effects, when a product or service becomes more valuable as more people use it. Unlike traditional growth strategies that rely on scale or branding, network effects create a compounding cycle that fuels adoption and defensibility. The NFX study highlights just how transformative this can be: over the past two decades, roughly 70% of tech’s value has come from companies leveraging network effects at their core, reshaping how digital businesses grow and compete.
“We wanted to put an actual number on the amount of value network effects have created in the digital world. The short answer: over the past 23 years, network effects have accounted for approximately 70% of the value creation in tech." (Currier, 2022).
"We did a study of the digital companies that were founded since the Internet was widely available in 1994 and that went on to become worth more than a $1 billion. 336 companies between 1994 and 2017 met this criteria." (Currier, 2022).
"By looking at each of the companies’ business models and comparing them to our list of 13 known network effects, we estimate 35 percent of those companies had network effects at their core. They were, however, typically much more valuable than companies without network effects so they added up to 68% of the total value in our spreadsheet. (Details about the methodology of this analysis can be found at the bottom of this post)" (Currier, 2022).
"In other words, companies that leverage network effects have asymmetric upside. They punch above their weight. They are the Davids that beat the Goliaths, and then become the Goliaths." (Currier, 2022).
"The other 65% of $1B+ companies used other defensibilities to create their value— namely embedding, scale and brand. These are good approaches, and created 219 $1B+ companies. 65% of the total. But those companies’ valuations typically top out in the $1-$2B range, leading to the results of this study.” (Currier, 2022).
This article demonstrates the disproportionate advantage network effects provide. It’s not just about gaining users, it’s about designing systems where each additional user strengthens the experience and makes it harder to leave. From a design perspective, this is the ultimate challenge: creating something that grows through collective use. Features that encourage sharing, collaborative spaces, or interactions that improve with more participants turn a single use tool into a scalable ecosystem. Designing for momentum and communal value, rather than isolated use, is where the real impact (and the real magic) happens.
References.
Currier, J. (2022, July 6). 70 percent of value in Tech is driven by network effects. NFX. https://nfx.com/post/70-percent-value-network-effects
Images, G. (2023). Close Up Background Image of Server Cabinet With Yellow Internet Cables and Wires Connected to Ports, Copy Space [Photography]. Unsplashed. https://unsplash.com/photos/close-up-background-image-of-server-cabinet-with-yellow-internet-cables-and-wires-connected-to-ports-copy-space-wlj4jHjMMrM
Content in this work draws on material from NFX’s article 70 Percent of Value in Tech is Driven by Network Effects (~40%), with original contributions by the author including synthesis, contextual analysis, and application to design and user experience (~35%). AI (ChatGPT-5) assisted in drafting, condensing, restructuring, and editing text for clarity, coherence, and conciseness (~25%). All interpretations, conclusions, and analyses remain the responsibility of the author.
