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Economic Moat Sources: The Network Effect

Uncover where to find and how to measure this rare competitive advantage.

A network effect occurs when a product or service becomes more valuable as more people use it. This creates a self-reinforcing cycle that attracts new users, increases retention, and lowers customer acquisition costs over time. 

Network effects are one of the stronger and most sustainable forms of competitive advantage, yet also one of the hardest to build and maintain. 

In this report, Morningstar’s equity research team examines why only a small share of companies achieve this type of economic moat. This report helps investors and financial professionals identify true network effects and their strength. 

What's Inside

  • Learn how demand-side economies of scale work and how to tell the difference between genuine network effects and temporary user growth.
  • Explore the metrics Morningstar analysts use to evaluate network strength, such as user growth trends, retention patterns, and customer acquisition costs.
  • See the 90-plus companies in our coverage that benefit from the network effect.