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Self-sustained growth

Then there is the concept of critical mass as a phase of self-sustained growth. In this view the point at which critical mass appears is akin to a tipping point, that, once passed, leads into runaway growth. According to this conception, before an application reaches critical mass, its growth has to be sustained by things such as advertising and price cuts or even gifts. In another variation of this concept, critical mass is a size beyond which an application becomes profitable (advertising costs drop and one can start charging).

A related, but unusual property of the economics of network effects pointed out by David Allen, is that network effects apparently make the supply and demand-curves bend in a direction opposite to those they normally take. Whereas normally, as more of something is produced, demand goes down, and the cost of supplying the product goes up (due to scarce resources), with applications that exhibit network-effects demand goes up as more people use it (network effects), and piece-wise costs go down (due to it being a virtual good). See figure.

This effect can, however, be explained away if, with Hugh Fullerton, we assume that the number of users using an application, besides influencing demand in the normal direction (down), also improves an important feature of the product (its uptake), thus drawing a new demand-curve above the previous one (figure).

Next on read-path: Saturation
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