Lenny Rachitsky: belief

Transcript context

…Network effects, let me define it. Network effects is when you create value for passive members by other people joining the network. So I am by myself, I have done nothing. I'm at home, chilling, but one person joins the network and immediately I gain benefit, okay. So think about Facebook. If there are eight billion people on Facebook, it means that all of a sudden I can reach everyone on the planet. And so the more people on Facebook, the more it's valuable to me regardless of my effort. That's network effect. If I'm into Word, word processor, Microsoft Word, and the more people who use that file format, it means that the more Word documents I can read. And so I did nothing, so by increasing the people adoption of Word, I gain benefit. Network effect, that's what it is. So Twitter and then this is the mental model of critical mass, network effect is about critical mass. You hit a critical mass and sometimes that's not mathematically defined, and then you've hit network effect because people want to come because people are already there. So Twitter has hit critical mass and lots of your favorite social networks. Network effects is a feature by itself, and it's the most powerful feature. A good way to illustrate the power of network effects is Twitter did not die because Threads came about, that's the power of network effect. In fact, the last telegram was sent in 2016, over 100 years after it was invented because of network effects. It had to be manually closed down. I believe Friendster is still alive, so we have to be really clear that it's really hard to kill a network effects business. Now how do you actually accomplish it if you were to accomplish it? Well, the revenue side of any social network is vulnerable to attack. So for example, if advertisers stop being on Twitter, for example, they're not gone because again, network effects affects them. They want to go where the eyeballs are. But if for some reason they disappeared, while the people will continue to come, the ability to have money to improve the network will disappear. And that is a negative spiral. What is very, very hard to kill business, it's hard to kill software that's reached network effect, although you can kill businesses that have reached network effect. That's a really important and interesting insight. I think what's even especially interesting about Twitter is Elon and the team have removed every other benefit of Twitter, like the brand, gone, employees, 80% gone. Every part of it is being cut off, except for the network effects, and so it's a really cool case study. Dan Hockenmaier tweeted this, was a previous guest, of just like it's a good case study of what is just the power of just network effects. That's right. I did a really interesting course at Berkeley Business School, asked about technology companies and so on, and this is a perfect case study on network effect. The best I've ever seen. It is incredible.…

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