In this chapter, he speaks about the moat created by network effect. Network effect is the value created for a product or service based on the number of users. More the numbers, higher the value. Good examples of this are google, facebook, ebay etc. ebay is a classic example of network effect. Buyers go to ebay because they see large number of listings of product by multiple sellers. Sellers sell in ebay because, they find the maximum number of buyers in ebay and their chance to sell more is high. Latest example is Apple iphones/ipads. More iPhones and iPads are sold because of large number of apps that the buyers can select from. More apps exist because more developers write code for apple iOS than any other operating system because that is the most used. Even though Android market share is higher, when it comes to hardware sales Samsung smartphones may be a distant second to Apple. Microsoft inspite of being a big company is unable to compete because its late in the game.
Network effect is a extremely powerful type of competitive advantage as per the author. Its mostly found in information sharing business that connects people
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