The Network Model's value increases with more users

The Network Model is a type of subscription business where the value of the service for each individual user increases as more people join the network. This creates a powerful, self-reinforcing growth dynamic known as the network effect.

The classic example is the telephone. A single telephone is useless. Two telephones are slightly useful. A network connecting every home and business is immensely valuable.

Key characteristics of this model include:

• Positive Network Effects: The core mechanic is that the network effect creates a virtuous cycle. Each new subscriber makes the service more valuable for all existing subscribers, which in turn helps attract even more subscribers.
• Users as Marketers: Subscribers have a built-in incentive to evangelize the service and encourage their friends and colleagues to join, because it directly benefits them. WhatsApp grew to hundreds of millions of users with virtually no marketing spend because users actively recruited others to the platform.
• Density is Crucial: For network models tied to a physical location (like Zipcar), building density in a small area is critical before expanding. A sparse network offers little value.
• High Capital Requirements: Building the initial network (whether physical or digital) often requires a significant upfront investment in infrastructure before the network effects can take hold.
• Risk of Reverse Network Effects: The same forces that drive growth can also accelerate decline. If users become dissatisfied and start leaving, the network's value decreases for everyone, which can cause a cascade of cancellations.