Network Effects as Innovation | New Product Strategy Capability in the Age of AI

New reframing of network effects, new product strategy capability, what a single move in OFMOS® contains

A new post on the Ofmos Blog reframes network effects — one of strategy's most studied phenomena — as a form of product innovation. The reframing reveals a new product strategy capability the conventional literature cannot produce: the deliberate management of functionality-increasing innovation mechanisms over time. These insights are rooted in the Ofmos Theory of Business, the same theory behind the game OFMOS® Essential. And since we have just entered the last week of the campaign on Kickstarter, it is also worth stepping back to consider why all of this is arriving now. READ AND PASS ON. Why Now — Back to the Future The field of strategy peaked in the 1990s. Pankaj Ghemawat, tracking the development of salient strategy frameworks over six decades, found that the number of genuinely new and influential frameworks reached twenty-five in the 1990s, dropped to thirteen in the 2000s, and fell to four in the decade after that. Richard Pascale's importance-weighted citation index, which had tracked the impact of new business ideas for decades, stopped being updated around 2000 — not because the task was complete, but because there was no longer enough new thinking with real impact to make the tracking worthwhile. The field didn't collapse. Important work continued in specific domains. But the foundational tools — the five forces, the BCG matrix, disruptive innovation — were developed decades ago, and nothing replaced them at the level where the big picture of business is supposed to come together. Then AI arrived — not to fill the gap, but to expose it. As operational and analytical work gets absorbed into automated systems, the remaining decisions are increasingly the ones that demand genuine strategic judgment. AI is not reducing the need for strategic thinking — it is making strategic thinking the thing everything else depends on. And the cost of not having developed it is higher than it has ever been. If the thinking that matters most is the thinking that can't be automated, then developing it probably can't be automated either. It requires direct engagement with the dynamics — encountering them, reasoning through them, and experiencing their consequences firsthand. That points toward something more experiential, more direct, and more human than what most of our current tools offer. This is the landscape against which our latest blog post — and, of course, our foundational theories, the new strategy framework, and the tabletop simulation OFMOS® Essential — should be assessed. Read the entire Why Now JOIN THE MOVEMENT. Network Effects Are Innovation in Disguise Network effects have been classified as a demand-side externality across four decades of research — from Rohlfs (1974) through Katz and Shapiro (1985) to Shapiro and Varian (1999). In short, the benefit that a user derives from a product increases with the number of other users. The conventional literature attributes this to the network — it is a consumption externality, a property of the network's size. The product does not appear in this account as something that is changing. It is the network that grows; the product stays the same. And the user appears as a node whose presence changes the math. A new post on the Ofmos Blog argues that the conventional literature describes the right outcome but attributes it to the wrong cause. What is actually happening is a change in the product — what we call the experienced product. The product is becoming more capable as adoption activates capabilities that were structurally present but latent. It is not that the user gets more utility from being in a bigger network. It is that the product's experienced functional complexity is increasing — and with it, its perceived value. This is not a network externality. It is a form of product innovation — what the Ofmos Theory names product innovation through adoption. It is one of three mechanisms of functionality-increasing innovation the post identifies. Product innovation through engineering is the traditional form: the vendor builds new capabilities. Product innovation through discovery is the mechanism Apple leverages deliberately: the individual user finds capabilities that were present but not immediately apparent, and the product becomes more valuable through the user's own exploration. Product innovation through adoption is what the network effects literature has been describing for four decades — without recognizing it as innovation. The functionality-increasing product innovation mechanism mix is the combination of the three mechanisms — engineering, discovery, and adoption — as deployed for a given product at a given time. The post argues that the deliberate management of this mix over time is an essential part of the product strategist's toolkit. The innovation campaigns must be sequenced and staggered to respond to the effects of commoditization and competition, among other strategic priorities. When AI agents join a platform as participants, they activate latent capabilities the same way human users do — but at a speed no human network has matched. The dynamic that took Facebook a decade may compress into months. Faster adoption means faster commoditization. The strategist who mistakes this for a moat may find that the competitive landscape has already shifted by the time the next innovation effort begins. The full post covers: The Product Is Missing from the Network Effects Literature What the Ofmos Theory Sees: The Product Becoming More Capable Functionality-Increasing Innovation Through Discovery Functionality-Increasing Innovation Through Adoption The Paradox of Learning: Commoditizing Known Features and Revealing New Ones Functionality-Increasing Innovation Must Be Continuously Renewed The Functionality-Increasing Product Innovation Mechanism Mix AI Agents: Why Innovation Through Adoption Can No Longer Be an Afterthought Product Strategy's Missing Capability: The Deliberate Management of the Functionality-Increasing Innovation Mechanisms Read the full post "Network Effects Are Innovation in Disguise" BE OUR PARTNER. One Rightward Move = A Whole World of Functionality-Increasing Product Innovation The blog post describes three mechanisms of functionality-increasing innovation — engineering, discovery, and adoption — each producing efforts that must be continuously renewed and coordinated with the others, each interacting with the commoditization force that acts on every offering in every market. Every rightward move in OFMOS® Essential is an act of functionality-increasing innovation. The three mechanisms are the richness underneath that single move. That is what we mean when we call the game an orrery. An orrery does not replicate the cosmos. It reproduces the structural relationships that govern planetary motion at a scale where those relationships are visible, traceable, and observable. The game does the same for business. THIS IS THE FINAL WEEK OF THE CAMPAIGN FOR OFMOS® ESSENTIAL. If this argument resonates — if you see the value of a theory that reframes how we understand business and a game that reproduces those structural relationships at a playable scale — this is the week to pre-order your orrery of business. Pre-order OFMOS® Essential THINK BIG & GOOD LUCK! Ofmos Newsletter | Ofmos Blog Copyright © 2026 Ofmos Universe, All rights reserved. This is an update from the Ofmos Universe team. Our mailing address is: Ofmos Universe PO Box 475732 San Francisco, CA 94147 Add us to your address book Want to change how you receive these emails? You can update your preferences or unsubscribe from this list.