Apr 18, 2022 · 15m · founders-journal
An Introduction to Network Effects
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Alex Lieberman introduces the fundamental concepts of network effects based on Andrew Chen's book The Cold Start Problem, exploring how network-driven platforms scale, capture value, and overcome critical operational challenges.
Statements from this episode (6)
97% of users abandoned Tiny Speck's Glitch game within five minutes
“97% of people who signed up for Glitch left within five minutes.”
Five of the top ten public companies leverage network effects
“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”
Valuable network businesses intermediate transactions without owning the underlying assets
“The first really important point, networks, and especially the most valuable networks, are fascinating in that they connect millions or even billions of people, but they do not own the underlying asset that is exchanging hands. Airbnb doesn't own any homes, wh…”
Markets led by network-based businesses generally become winner-takes-all
“Second, really important point in this era that we live in where there are a lot of network based businesses and with markets that have leaders that are network based, it generally is winner takes all. Like it is hard to be the business that is in second, thir…”
Building products is easier than ever, but capturing attention is harder
“It has never been easier to build a product because of the acceleration of technology and the low cost of building any new product. Finding talent to work on your product is easier than ever because just You know, amazing marketplace that exists online for fin…”
Every network-based business inevitably hits a growth ceiling due to rising CAC
“No network based business
Is basically free and clear of hitting the ceiling.
And at this point, it's when your network is stalling in growth because customer acquisition costs.
So the cost of you acquiring new users is going up.
And that generally happens whe…”