Negative Network Effects

In some situations, more network usage or greater network size can actually decrease the value of the network, leading to negative network effects.

Negative network effects can happen in two ways: network congestion (increased usage) and network pollution (increased size).

The most familiar example of network congestion is road traffic. During rush hour, every additional car on the road makes the network of roads in a city more clogged up (i.e. less valuable) for other drivers. Similar congestion can take place in telecommunications networks, although it is rarer for online networks.

Network pollution, however, is more common for online networks. The wider your social graph grows on Facebook, for example, the more polluted your Facebook News Feed becomes with irrelevant or undesired content from acquaintances you barely know or professional contacts/family members.

It's possible for networks to have negative and positive network effects at the same time. Twitter and Facebook are two of the best examples, as both Twitter and Facebook feeds show you many people in your network, but if it's too many, the feed can get polluted.

It's important for Founders to be aware of this so they can build product features to mitigate negative network effects as much as possible while fostering positive network effects.