Networks — Part 1: History of Networks
At Forte, we’re dedicated to creating new economic and creative opportunities for billions of players around the world. To accomplish that aim, we’re building a community-owned gaming platform using breakthrough technologies and a new business model that presents an opportunity to change the gaming industry forever. Our commitment is to develop a new and sustainable path forward for gaming that’s open and interoperable; that progressively decentralizes until it’s fully owned by its users; that is transparently and equitably governed by the community that has a stakehold in its success; and that is dedicated to the long-term health and growth of gaming, rather than short-term gain. The core of our purpose is launching new ecosystems that are rooted in community economics: Business models that give ownership to all participants, and reward developers, players and publishers for the contributions they make to the health of the game communities.
With this series, we’re sharing our research and observations in order to engage with all those who are also interested in advancing and building community economies within games. If you’re interested in contributing to this series, we welcome your insights. Reach out to us; we’d love to have you aboard!
We wanted to begin this series at the beginning, by talking about networks, because the promise of community economies in games is rooted in the understanding that games in our digital era are fundamentally networks, and grow or stagnate in the same way that other networks do.
So what’s a network?
In its simplest definition, a network is a collection of participants who are using a given system and the connections between them. They choose to use the network because it gives them benefits — for example, the ability to speak with distant contacts provided by the phone network, which only exists if both you and your contacts are actually on the network. The collective sum of all of these benefits to everyone on the network are what we refer to as “network value.” It goes up as more people belong to the network: It’s easy to see how a communications system with just two people on it, like a walkie-talkie or a pair of cans connected by a string, is much less functional and powerful than one with hundreds, thousands or millions of people connected to it and to one another.
When network value changes as more participants join the network or more connections between participants are formed, we call that network effects.
Network effects are a main driver of value generation where new technologies are concerned, because while network costs generally go up linearly as networks grow, network value tends to go up exponentially.
Of course, not all networks and network effects are created equal. Different networks build, capture and distribute value differently. When one looks at how networks have evolved over the past few decades, one major disruption stands out: The marginal cost of new network connections has dropped to near zero, which has allowed tech giants to overwhelmingly dominate across most industries. By way of example, AT&T spends around $350 to add a new mobile subscriber, which includes both the costs of service and network capacity and its acquisition costs; its average annual revenue per mobile user is around $55, which means it takes about six years for AT&T to begin making money from a mobile-only user. Facebook spends less than $15 to add a new user, and generates over $36 in annual per-user revenue (in the US), which means that every new user becomes profitable for Facebook in less than half a year.
But even within the Internet era, there have been changes in network-based business models. In the earliest era of the web, business models were centered on brands distributing proprietary content to end users. Think of America Online, which licensed huge amounts of content for distribution to its gated community — even, in 2001, merging with Time Warner in a bid to maximize its access to original proprietary content.
Newer platforms have increasingly shifted their focus towards aggregating content or connecting users to one another. These peer to peer platforms had vastly reduced costs for maintaining engagement: Their prime content was either created by their users, or was their users themselves. At the same time, this “users as product” focus made continued network growth an even greater priority.
Alongside this came the emergence of a class of Internet companies focused on providing their platforms as mechanisms for the exchange of access to crowdsourced goods and services — the “sharing economy.” These businesses (think of Uber, Airbnb, Taskrabbit and others) generally sat in the middle of two different and distinct networks — providers and customers — generating revenues by efficiently connecting one with the other.
All of these prior iterations of network-based enterprise have something in common. They reserved for themselves unique and centralized power within their networks, unilaterally making decisions on how value is distributed to network participants and capturing data about network relationships and transactions for themselves, with little or no transparency to users.
The next evolution of the web promises to fundamentally alter this power imbalance between businesses and their users, with a “decentralized Internet” that distributes control more evenly across the network. Built on peer-to-peer technologies like blockchain, this new paradigm democratizes network information, distributing it across user nodes rather than locking it in a central vault; it also embeds the concept of value into the network itself — something that the developers of the original Internet had little concern for, given their goals of building a robust communications platform for national defense. By integrating value into its core protocols, this next Internet acknowledges that users contribute to the system, and should be incentivized to keep doing so in order to sustain and grow networks.
In short: A decentralized Internet is optimized for positive network effects.
In the second part of this series, we’ll talk about “network effects” and how they impact the size and activity of networks by providing fuel or serving as a drag on growth.
Interested in contributing to our Community Economics series? We’d love to hear from you. Comment below!
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