Web3 has become the defining tech trend of 2021 — and network effects are at the center of this. Let me begin by setting some context:
Platforms share many characteristics with marketplaces. They create value by connecting demand with supply — specifically, they connect users with app developers. So it is natural to assume that platforms have the same monetization options available to them as marketplaces do. …
Data networks are unique within the world of network effects. Most network types create value by allowing participants to interact with each other in some way. Data networks, however, do not connect participants directly. Instead, they crowdsource data from participants to improve the product for all of them. This has…
Like other types of startups built on network effects, marketplaces create value by connecting participants. Specifically, they connect demand with supply to enable transactions. This gives them an obvious way to monetize — take a cut of every transaction. However, this cannot be blindly applied to all marketplaces as there…
Startups succeed by uncovering a unique insight to create value for their users. This value creation is only sustainable if they can find a way to capture some of it themselves, i.e. monetize. This is just as true for startups built on network effects. However, they are more complex to…
Facebook is among a handful of truly generational internet companies. Its journey to over $1T in value started with a simple idea: a social network based on actual identities and real-world social connections. …
Metrics (or KPIs) are among the most well-researched topics within the startup ecosystem. This is just as true for those built on network effects. There are great resources available from A16Z, Point Nine Capital, and Speedinvest Pirates just to name a few. The goal of this post is not to…
So far, I have explained various characteristics of network effects and their impact on scalability, defensibility, liquidity, and monetization. The implicit assumption here is that interactions between participants are positive for everyone involved. This is true most of the time, but not all of the time. Interactions between network participants…
Network effects can only take hold when a product has reached a minimum threshold or critical mass of users (also called liquidity) — this is true for marketplaces, interaction networks, and data networks. Platforms, on the other hand, are unique because they are always built on top of another product…
Data network effects are a tricky beast and come with a difficult set of trade-offs. But these trade-offs only become meaningful after the data network has gained critical mass. The considerations for gaining critical mass on a data network are largely unique from other models because users don’t interact with…
