Thread by @trengriffin

1/ In 1994 I said to Bill Gates that while network effects can be beneficial, the phenomenon can easily disappear because the factors that sustain them are brittle. We were talking about AT&T losing network effects.

Bill responded to me by saying "That's why I worry so much."

2/ At the time (1994) our friend Craig was selling McCaw Cellular to AT&T, which was buying mobile assets since it believed it could save the long distance business. AT&T (the long distance co. now gone) not understanding network effects was ironic given who first described them.

3/ Each question is different

a. Do you have a moat? (The test is based on math)
b. What created the moat (eg, supply or demand side scale economies)?
c. What value does the moat protect? (Google a lot vs Twitter not so much)
D. How long will the moat last (CAP)?

4/ Google has at least two beneficial demand-side economies of scale — one for search and one for advertising targeting — that are mutually reinforcing. The Google platform is for something sellers value. The Twitter platform is not as valuable to sellers. a16z.com/2016/03/07/net…

5/ What else reduces the value of barriers to entry (moats)?

Porter: "Competition for profits goes beyond established industry rivals to include other competitive forces [including] suppliers."

Wholesale transfer pricing can be a problem in any profit pool in any value chain.

6/ "A critical difference between single and multi-sided market is that the sides interact directly. A single-sided “market maker” buys x, puts x in inventory, and eventually sells x. Multi-sided markets look like this: 25iq.com/2016/10/22/a-d…

7/ A market that has two or more sides is vastly more financially attractive to create since it has the potential to scale and generate value in a non-linear manner. Network effect-based value can increase exponentially at the same time as costs grow linearly, if at all.