Network Effects Map

Network Effects and Defense Abilities

• The network effects map is a tool for founders to dissect and navigate different network effects and defense abilities.
• Four core defense abilities in the digital age:
  • Network effects
  • Embedding
  • Scale
  • Brand
• Network effects are the most significant, accounting for approximately 70% of all value created in technology since 1994.

Types of Network Effects

• 13 different types of network effects, each with its own playbook.
• Arranged from strongest to weakest, moving from the center of the map outwards.

Direct Network Effects (Blue)

• Defined as each new user adds value to every other user.

Examples:

• Comcast or AT&T: Physical nodes in the network.
• Protocol: Bitcoin, Ethernet, fax.
• Personal Utility: Facebook Messenger, WhatsApp.
• Personal Network Effects: Facebook, Twitter.

Market Networks

• People add value to each other for transactions.

Examples:

• HoneyBook
• AngelList

Two-Sided Network Effects (Red)

Marketplace (Simple Two-Sided)

• eBay
• Craigslist

Two-Sided Platform

• Operating systems: Microsoft OS, iOS

Two-Sided Asymptotic Marketplaces

• Value doesn't grow as much over time.

  • Uber
  • Lyft

Data Network Effects (Orange)

• Multiple types exist.

Tech Performance

• The more nodes, the faster the network.

Examples:

• BitTorrent
• Skype

Social Network Effects (Yellow - Outer Rim)

• Least powerful but still interesting.

Language Network Effects

• Using a brand name as a verb: "Google" or "Uber".

Bandwagon Effects

• Driven by the fear of missing out.

  • Apple products

Belief

• Value increases with the number of believers.

  • Bitcoin
  • Religion
  • Gold

Map Evolution

• The network effects map is constantly evolving through ongoing learning and analysis.