I took this piece of copy directly from the 37 Signals blog. When it comes to websites, it’s what often the one thing we really need to break through. I also think it is why ‘free’ on the web just wont go away. It’s something web startups just can’t ignore.
The Network Effect: The network effect occurs when the value of a particular good or service increases for both new and existing users as more people use that good or service. It can also occur when other firms design products that compliment an existing product, thereby enhancing that product’s value. For example, the fact that there are literally millions of people using eBay is the thing that both makes eBay’s service incredibly valuable and makes it all but impossible for another company to duplicate its service.