• 6 min read
• Published on 25 July 2025
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The Enduring Allure of the Network Effect
View the full Basket:Network Effect Titans
Have you ever looked at a company like Meta and wondered how on earth it became so dominant? It wasn't the first social network, and let's be honest, it wasn't necessarily the best. Yet, it crushed the competition. The reason, I think, is one of the most powerful and, frankly, unfair advantages in modern business. It’s called the network effect, and it’s a beautifully simple concept. The more people who use a service, the more valuable that service becomes for everyone. It’s a self-perpetuating growth machine, and for an investor, understanding it is crucial.
Think of it like the first telephone. Owning one was utterly pointless. Owning one when your friend across town also had one was slightly useful. Owning one when everyone in the country has one makes it indispensable. This isn't linear growth, it's exponential. While traditional businesses often struggle with diminishing returns as they get bigger, these companies experience the opposite. Success quite literally breeds more success, creating a formidable barrier that keeps competitors at bay.
View the full Basket:Network Effect Titans
This isn't just a phenomenon for social platforms. Take a look at PayPal. It’s a classic two-sided network. Shoppers want to use it because lots of merchants accept it, and merchants accept it because millions of shoppers use it. Each side reinforces the other. Trying to launch a competitor is a nightmare. You need both merchants and shoppers simultaneously, a classic chicken and egg problem that the incumbent has already solved.
The cost of leaving these networks isn't just financial. If you leave Facebook, you lose contact with your network. If a merchant drops PayPal, they lose access to a huge pool of customers. This ‘stickiness’ is the holy grail for any business. It gives them pricing power and a resilience that companies selling, say, baked beans can only dream of. It’s a deep, wide moat dug not with capital, but with human connection and convenience.
View the full Basket:Network Effect Titans
Then you have a slightly different beast, like Netflix. You might not think of it as a network in the same way as Facebook, but you’d be mistaken. Its network isn't built on friendships, it's built on data. Every time you or I watch a show, we are feeding its algorithm. We are telling it what we like, what we get bored of, and what we binge at two in the morning.
With a subscriber base in the hundreds of millions, Netflix has an ocean of data that allows it to make frighteningly accurate bets on what content to produce. A new competitor can throw billions at making shows, but they are flying blind. They don't have the data. This is why, despite the best efforts of some of the world’s biggest companies, Netflix remains the king of streaming. Its network of viewers gives it an intelligence that money alone cannot buy.
View the full Basket:Network Effect Titans
Of course, no investment is a sure thing. The very force that creates these titans can also, in theory, destroy them. A network effect can work in reverse. If a critical mass of users decides to leave a platform, its value can plummet, triggering an exodus. We saw it happen to MySpace. Furthermore, governments are getting increasingly twitchy about the power these companies wield, and the threat of regulation is always lurking in the background. These companies often trade at high valuations, so any market wobble could hit them hard. But for those looking for exposure to some of the most powerful business models ever conceived, the Network Effect Titans basket offers a look into this world of self-reinforcing growth. It’s a compelling, if not entirely risk-free, proposition.
View the full Basket:Network Effect Titans
View the full Basket:Network Effect Titans
View the full Basket:Network Effect Titans
View the full Basket:Network Effect Titans
View the full Basket:Network Effect Titans
View the full Basket:Network Effect Titans
This article is marketing material and should not be construed as investment advice. No information set out in this article be considered, as advice, recommendation, offer, or a solicitation, to buy or sell any financial product, nor is it financial, investment, or trading advice. Any references to specific financial product or investment strategy are for illustrative / educational purposes only and subject to change without notice. It is the investor’s responsibility to evaluate any prospective investment, assess their own financial situation, and seek independent professional advice. Past performance is not indicative of future results. Please refer to our Risk Disclosure.
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