Network Effects

“None of the classic moats are based on how hard it is to make the software. You know, like we're not building self-driving cars. Most of us aren't. So it's network effects, it's scale advantages, it's brand effects, proprietary sort of data or what was histori…”

“The moats that are still working are still the same ones, which is hardware, because it's so hard to actually create hardware. Network effects. Network effects has always been really hard to create, but once you have it, oh boy, this is a gift that is going to…”

“The companies that don't have network effects are going to struggle very significantly because then there's not really a defensible moat in the pure software associated with the products that they build.”

“One that I think will increase in importance is something like network effects, because it doesn't matter who's writing the code. It doesn't matter if it's an agent at the core of your product or something else, or if there's intelligence in your product. If t…”

“I don't, I think network effects are certainly an important piece of the puzzle for sure. But I don't think they're enough when it comes to these sorts of software you know, software cloning.”

“You can't like vibe code a network. You can't vibe code a new data set.”

“So actually, you know, what reflects the value of the network is, you know, are the people that you actually talk to and communicate with, especially the ones you communicate more frequently, are they a part of your network? And if they are, Then you can accru…”

“There are no network effects in building the models yet. There may be in the future, but at the moment we don't know.”

“If you're open AI, you've got, don't fundamentally have a technology lead. You're first among sequels at best. You've got this giant user base. That's not, that has very shallow usage and engagement. And it isn't really locked. It isn't locked in. It doesn't h…”

“There was incentive for a long time for companies that, where their moat was not software, to say, we're a software company, we need to hire the best software engineers, Look at our open source projects, focus on all the cool tech that we're building when real…”

“Memory is a feature and a stickiness, not network effect.”

“It's really hard to screw up a network effect business for usually at least a decade.”

“You're gonna wanna start a one-person business with network effects. If you don't think that it's possible that there's network effects, it's going to be possible, but I think it's gonna just be extremely hard. If you do have network effects in some capacity, …”

“Take the communication tools or the enterprise tooling and like make it real time and cloud-based. Those things have network effects to them.”

“If you have a big network, but you're only talking to three or five or seven people in that network, that actually the size of the network doesn't matter that much. What matters is that those people, those, you know, that you talk to all the time are a part of…”

“So if you look at the top, you know seven companies in the world in terms of market cap, Five or six of them have network effects at their core. And that was not true. 30 years, 20 years ago.”

“Don't think of yourself as choosing a job or choosing an industry or think of yourself as choosing a network.”

“The businesses that succeed in a world where software costs approach zero will be built on network effects.”

“Almost all technology has network effects underneath, and so even if you are open, you're still going to win, and you're still going to control all the most of it.”

“The network effects are in the app layer. So why would I want to spend a lot on some model capability with the network effects are all on the app layer?”

“If you don't build the network effect into what you are making, You are almost certainly going to fail.”

“So the first Player has a huge advantage. They have bigger density. They have therefore better pickup times in terms of the cars. They can therefore offer you a much better customer value proposition. So if you're coming in as a second player, it's generally a…”

“A network effect is good, but it's not as good as that incredible platform durability.”

“What we've seen instead over the last couple of decades is that digital markets are different. And in fact, they can lend themselves to tipping. It can actually become much more difficult to break in Once you have a firm that's become dominant and is protectin…”

“There's a really important difference between a network effects driven business like this one and a traditional SaaS business where each individual user or player is contained to their own silo, even if they're in like a multi-tenant system. And that big diffe…”

“To get a real time collaborative system to work, people have to be online at the same time. Yeah. Right. And so you and I are, we're collaborating. We have to be online at the same time and we might be in totally different time zones. And you know, like it's j…”

“Most things that Need to have that kind of network effect, never get past the cold start problem, right? They just, they strangle early because, you know, there's just not enough writers, which means there's not enough readers. There's not enough readers. Ther…”

“And the challenge with paid is It always looks better yesterday than it does today, unless you have a network effect business where the product quality is getting better, faster than the quality of people you're bringing are getting worse, right? Cause you alw…”

“So what needs to happen is that the product needs to get better faster than the users you acquire get worse. And network effects are really the only scalable solution that can make that happen.”

“B to B software has very rarely had network effects, right? What it has had instead is more economies of scale.”

“Well, just because these agreements are no longer enforceable doesn't mean that businesses don't have moats. It just means you have to look in other places. I mean, you have to find network effects. You have to find data scale effects. There's other ways of bu…”

“LLMs can be a source of differentiation. Today, they might provide a first-mover advantage, but old-fashioned modes like network effects, high switching costs, scale, and brand are still what will likely win long term.”

“And so if the legacy trade organizations and associations you're talking about have network effects, as a bootstrapper, I personally would be very wary of trying to unseat those.”

“I think you definitely do past X thousand employees see some regression to the mean, and the art is constructing some accumulating advantages, let's say a network effect before that happens, because the momentum of a network effect can offset some of the slipp…”

“And basically, what's weird about network effects is if you're not Benefiting from them. You don't know what you are missing.”

“Once you've won a space that has strong network effects, then the threat is not from something that's the same, but 10% better. The threat is from something that either solves the underlying problem in some completely different way or complete or unbundles you…”

“And largely as an investor, I'm a kind of a one trick pony. Everything I would like to talk about as an operator and an investor typically involves a network effect.”

“Almost all network effects are sublinear.”

“And if you believe in network effects, one of the most potent discoveries of the digital era, you believe actually we may not have a direct business case for producing and distributing this device relative to what they can pay us and what we can charge for it.…”

“Power in tech is network effects, almost always. Occasionally you have scale effects, brand effects, but generally it's network effects.”

“In the case of Web three, the network is owned by the community yet. I think you'll have big services. We'll hopefully invest in some of them, but they won't have the dominant network effects that lock you in and users will have a choice. Users can exit.”

“Well, I think YC is the only platform that has strong network effects, and as all network effects have shown, if you, if we mess up The YC community, that, that is the, because it's, we are, we have this platform only because of the YC founders.”

“If you look at the 10 largest companies in the world right now by market cap, largest public companies. Five of the top 10 leverage network effects in some way”

“Network effects describes only the value creation, and it's a statement without consideration about competition, which the latter is all power is about. So regardless of how we end up defining network economies, it is the type of platform that we believe has p…”

“Businesses with network effects are generally winner-take-all markets, which means that finishing second as a two-sided marketplace is generally a recipe for failure.”

“The network effects are so powerful that it leads to exponential growth, and humans don't really think very effectively in terms of exponential terms, and they don't realize that when you have 50% compounding year over year, it ends up to lead to very big numb…”

“I find that network effects, the term on the internet is like way overused. And even when it is used, the implications of how it's being used are mostly incorrect.”

“You know, it's very rare that a business will be hundred percent organic. I can only think of a few examples, particularly the businesses that have network effects that are truly organic in nature”

“At AIM, it was a similar kind of idea where you had these tens of millions of users, and because of those users, we were able to keep the product afloat even during times when the product quality was quite poor, The product strategy wasn't very crisp. Our exec…”

“It's a better question for the other four, but I suspect it has something to do with Network effects, or user-generated content, or those types of concepts are, like, emotionally appealing to me. So if anyone walks in and uses those two phrases, I might have a…”

“You know, when we think about defensibility right now, the most obvious pattern that we've seen in the last 15 years now is really the concept of a network effect, right? The concept of a network effect seems to really be able to put in a chunk of defensibilit…”

“If you believe in the network effects of our business, it's a much more powerful paradigm to execute on multiple fronts of this network because the network converges faster.”

“If you look at all the value that's really accrued over the last 15 years, the vast majority of it has come from companies who have effectively built proprietary databases with strong network effects around them.”

“In our business and software, obviously there is a complex matrix of patents in some cases where you really need it. But At the end of the day, a lot of the defensibility and moats, we're looking at our network effects.”

“The first time it was used was in 19 oh seven in a annual report by AT&T.”

“Network effects began with hardware. It was first the telephone, then the Ethernet, and in today's world, we talk about it in the context of software companies like Facebook, right?”

“Network effects are One of the few ways we have left for software businesses to have a moat, to create a moat around their business so that competitors can't eat away at their margins.”

“The way we look at it is the network effects is really the only one that's native to what we're doing, and therefore it's the most powerful.”

“So I don't think that all marketplaces have network effects by definition. They have the potential, but different marketplaces are different at different stages of development in their evolution.”

“So the viral effect is about getting new users, and the network effect is about keeping those users, and they're very, very different things.”