Classroom Companion: Business

9.5 
 Same-Side and Cross-Side Network Effects
In a network, there may be same-side or cross-side network effects. Same-side net-
work effects imply that an increased number of users lead to an increase in value for 
other users in the same user group. Examples are telephones, social networks, and 
multiplayer online games. These networks are made up from direct or indirect con-
tact among the users of the service.
Cross-side network effects imply that an increase in the number of users in one 
user group enhances value in other user groups. These network effects arise only in 
multisided markets (see 
7
Chap. 
10
). One example is computers and software—
without software, there is no value in the computer, and without computers, there 
9.5 · Same-Side and Cross-Side Network Effects

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is nowhere to run the software. A little less obvious example is smartphones and 
apps: the availability of apps increases the value of the smartphone beyond that of 
voice and message communications. A final example is third-party content or ser-
vice providers in social media. The availability of, for instance, games on Facebook 
increases the value for Facebook users as well as the value for the providers of these 
games. In this case, there are positive cross-side network effects.
Note that both same-side and cross-side network effects may be direct or indi-
rect and positive or negative. Hence, theoretically, there exist eight different types 
of network effects—any combination of positive/negative, direct/indirect, and 
same-side/cross-side network effects.
Analysis of network effects associated with digital services includes identifica-
tion of all positive, negative, direct, indirect, same-side, and cross-side network 
effects and the estimation of the strength of these effects. A suitable tool for per-
forming such analysis is the stakeholder relationship model (SRM) presented in 
7
Chap. 
19
. The strength of network effects may be quantified using, for example, 
Metcalfe’s law.