Why the "Network Effect" is Crucial for TripAdvisor

TripAdvisor (NASDAQ: TRIP) is the largest online travel review site and may be of interest to contrarian investors. The stock is down almost 45% in the past 12 months, yet the company sports one of the most powerful competitive advantages, shared by the likes of Facebook and eBay: The Network Effect.

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A network effect occurs when a company's product or service becomes more valuable as more customers use it. Often times, it grants the first-mover a perpetually dominant position in that industry. In the case of Facebook, as more users came onto the platform, Facebook became more valuable as the default social networking platform. It now boasts two billion users and has a $500 billion market capitalization. In the case of eBay, its early lead as the premier online auction site attracted more sellers because there were more buyers, and more buyers because there were more sellers.

Source: Fool.com