Network Effects

• A growth loop combines product channel and model into one system.
• Defensibility connects underlying growth loops to accelerate over time.
• Four forms of macro loops or defensibility: network effects, brand, embedding, and scale.

Network Effects

• As adoption increases, value to users increases, bringing in more adoption.
• Strong network effects are central to companies like LinkedIn, Slack, Amazon, Airbnb, Uber, and Shopify
• Only 20% of tech companies had strong network effects, they accounted for over 70% of the value creation.

Network Effects vs. Virality

• Virality: One user helps acquire another user (BuzzFeed).
• Network Effect: As more users adopt the product, the value of the product increases, which helps bring in more users (Airbnb).
• Slack has both strong viral loops and network effects.
• Virality accelerates growth and lowers CAC, measured via k factor.
• Network effects provide defensibility through acquisition, retention, and monetization.
• Network effects are measured through Metcalfe's law.

Misunderstandings

• Not all network effects are created equally.
• Building network effects is methodical (not random).

Building Network Effects

• Constrain initial audience.
• Find a hook to accelerate time to density.
• Leverage accelerated time to density into the next audience.

Understanding Network Effects

• Types of network effects.
• Impact on growth model inputs: acquisition, monetization, retention, engagement.
• Step-by-step approach to building a network effect over time.