Google Case

The network effect is defined as the effect that one user of a good or service e has on the value of that good or service to other users. If there are network effects it means that the value of a product or service is increased the more people that use it. The classic example is the telephone. The more people within a network the more valuable the telephone because the more people you are able to contact. The same applies to websites like EBay. The more people that frequent this website the greater the value to potential sellers and buyers. The same is true for paid search markets.

Pioneered by Overture, paid listings were essentially Sponsored Links that appeared near or adjacent to web search results. Advertisers bid on these various key words and the amount of their bid would determine where their ad would fall amongst the search results. This was a great idea considering nearly 70% of Internet commerce started with a web search and nearly 40% of web searches had commercial motivations. Overture was able to conduct this marketing scheme by having a revenue sharing contract with AOL, Yahoo, and MSN. Their cost-per-click (CPC) model was different from Google's cost-per-view model. Google charged advertisers whether or not the advertising was even clicked. However, in 2002 they changed their model to a modified CPC model in which they weighted CPC bids based on a ratio of an ad's actual click