- Frameworks for thinking about them
- Different kinds of nfx
- Other forms of defensibility
- Addressing bottlenecks to nfx
- Misconceptions around nfx
References @JamesCurrier @anuhariharan @ljin18 @DCoolican (h/t @NFX for photos)
By creating barriers to exit for existing users, you create barriers to entry for new companies
Difference between marketplaces & D2C: They get easier rather than harder as you scale
Viral effects are about user growth.
Network effects are about defensibility
Viral effects get users & customers on your site.
Network effects keep them coming back—and using/spending more as they do.
8. Asymptotic Marketplace (e.g. Uber, Lyft)
9. Data (e.g. Waze, Yelp!)
10. Tech Performance (e.g. Bittorrent,Skype)
11. Language (e.g. Google, Xerox)
12. Belief (currencies, religions)
13. Bandwagon (e.g. Slack, Apple)"
nfx.com/post/network-e…
- The more you use the product, the better the experience gets
- The more you use the product, the harder it is to leave
- Conversely, you don't want your product to be easy to switch
medium.com/@sarahtavel/th…
Most big businesses have network effects, but not all.
- Scale enables negotiating leverage (e.g MoviePass), amortization of fixed assets (Netflix), & product density (LimeBike)
- Brand (e.g. Coinbase)
- High switching cost b/c embedding, habit, or personal data
medium.com/@mheiman/beyon…
- Slow Networks: companies where network effects take a while to build (e.g. Lambda School, YC)
- Latent Networks: companies that first focus on single player experiences before introducing multi-player (e.g. Roam Research)
a16z.com/2019/07/29/hid…
Social Networks: after a certain point, turns into reverse network effect
Ridesharing: Once multiple platforms hit relative liquidity, users don't care (supply commoditized)
Other reverse nfx:
a16z.com/2018/12/13/net…
When it doesn't, each additional user causes more challenge in discovery, resulting in decision fatigue (e.g dating apps)
Layer on functionality that can obviate the need for another product. (e.g. Uber layering on Uber Eats to prevent Lyft Growth, FB layering on stories to stymie Snap's growth)
a16z.com/2018/12/13/16-…
Sometimes more data is worse: instead of getting stronger, the data moat erodes as the corpus grows
It's a data network effects when data improves the algorithm that improves the user experience.
a16z.com/2019/05/09/dat…
A data network effect is when a product’s value grows as a result of more usage via the accretion of data.
nfx.com/post/truth-abo…
- who you marry
- who your friends are
- what job you choose
- where you live
nfx.com/post/your-life…
Many spaces aren't yet winner take all (e.g ride sharing, food delivery, healthcare, education) so there's still lots of room to build nfx businesses.
Almost half the world has smart phones now. We're just starting.
/FIN