Category Kings and Network Effects in Consumer-Tech Markets


Battery Ventures:

“Category kings”, defined as market-share leaders in particular business sectors, often wind up creating the majority of the market value relative to their competition. This advantage is particularly pronounced in technology: According to some research, over 70% of the value created in technology markets is actually generated by the category’s king (think in retail, Facebook in social media, etc.)

In fact, research we recently conducted around this topic showed that five-sixths of the market value generated by these leading tech players comes from businesses driven by “network effects”, the phenomenon of a product or service becoming more valuable as more people use it…

Transactional Marketplaces – Destinations where sellers and consumers meet to buy products or services. Examples here are travel site Priceline, food-delivery service GrubHub, and Chinese e-commerce site Alibaba.

Ad-Driven Marketplaces – These companies—like Zillow, Yelp and TripAdvisor—let consumers use the service for free, but try to get sellers (real estate agents, dry cleaners, hotels) to buy ads to fund the content.

Social Networks – Prominent companies in this category include Facebook, Snapchat and WhatsApp.