Such externalities exist when a particular product or technology gains value as a result of other consumers' acceptance of that technology. Economists' favorite example is the fax machine. Fax machines are virtually useless unless many people have them. The first consumer to purchase one was essentially investing in a conversation piece and betting that in the future, many people would make similar purchases. Now that virtually all businesses and many households own them, fax machines are valuable precisely because of their ubiquity.
Network externalities can help a firm quickly gain dominance in a category.
Each consumer who chooses one firm's product makes that product more valuable and increases the likelihood that the next consumer makes the same purchase. As a result of this positive feedback loop, the majority of consumers can end up choosing one firm's product. Of course in reality, the value of network externalities is usually more complicated and less direct. For example, Consumer A's Visa card does not become more valuable when Consumer B obtains one. Yet, the more people who own Visa cards, the more attractive card acceptance becomes to merchants.