Network effects occur when the value of a product or service increases as more people use it. For example, a social media platform becomes more valuable to its users as their friends and family join, allowing for greater interaction and communication. This creates a positive feedback loop, where increased usage attracts even more users. There are two main types of network effects: direct and indirect. Direct network effects happen when the value increases directly with more users, like in the case of telephone networks. Indirect network effects occur when increased usage leads to more complementary products or services, such as app developers creating more applications for a popular operating system.