By the conventional understanding of the network effect, which states a service is as valuable as the number of people using it, Facebook can only benefit, right? The social network has 845 million users logging on to the site multiple times a day and only has plans to get bigger as it just went public this morning and needs to keep growing to prove its value. But, in Facebook's case, as the site grows and its network gets bigger, it will also get more annoying and less useful. Facebook's network effect isn't exponential, it's more of a curve, that will, at some point, start its downhill trajectory.
The essence of a social network is that it connects one person to another person. That's its value for regular people. And, Facebook's mission is to do just that, "the make the world more open and connected," as it describes in its S1 filing on that glowing web of connectivity over there. More connected means getting more people on the network. It also means getting them to share more things on the network. (Think: Open Graph.) For Facebook users, finding more and better ways to connect with friends or "friends" is the reason we use Facebook. That's the network effect in action. If none of our friends were on Facebook, for whom would we post those memes and vacations photos? We wouldn't. And the theory goes: the more people on there too share various things with, the more useful the product.