The challenges of scaling online communities and marketplaces:
Network effects are the most exciting aspect of building an internet startup.
Most online platforms have very little or no value of their own. The value is created by users and as more users join in, more value is created, which over time sets up a positive feedback loop. Hence, the more an online platform scales, the more valuable it becomes. YouTube is more useful with more videos, Facebook is more useful when more of your friends use it, eBay is more useful to buyers when there are more sellers, and vice versa.
However, as I’ve written earlier, Reverse Network Effects may sometimes set in with scale i.e. online networks may become less useful as they scale. I do not imply that all online platforms lose value as they grow. However, in the absence of robust curation, online platforms may lose value as they grow.
Under what conditions do online platforms lose value as they scale?
Since the participants on an online platform create value, an online platform loses value with scale when the participants it allows in OR the information/value that they create are not curated appropriately. Poor curation leads to greater noise which makes the platform less useful.