There are some very good points in Tren Griffin’s article reprinted on Andreessen Horowitz’s website Two Powerful Mental Models: Network Effects and Critical Mass in 2016. The article discusses how some network effects are weak while others are strong. There’s the example of Friendster, a social network that existed before Facebook and before MySpace.
“the strength of network effects is not just determined by the number of participants in a network.” -citing a study by Andrew Odlyzko
There’s an examination of why Friendster failed: “the bonds linking the network were loose.”
Why did the VHS tape won over the Sony Betamax back in the 70’s and 80’s in the home VCR market ? VHS got to critical mass before Betamax. VHS recorders and tapes were cheaper.
The author also mentions the apparent reason why Facebook overtook MySpace “Facebook held off monetizing until its moat was secure”.
Thought of the day: “Let’s talk less about the elites and let us become the elites.” -Max Cantor
Griffin gives us 12 quotes about critical mass and 12 on network effects. Read them.
Network effects and critical mass are two -most important- mental models. Charlie Munger hints at 100 mental models in his book, Poor Charlie’s Almanack -one of the books I recommend. However, Griffin says quoting Munger, just a few of those mental models “really carry the heavy freight”.
What are some of those models we apply in tech and VC, in additions to those two above ?
- Cumulative effect
- Bottlenecks and founder effects
- Parreto Principle (everybody knows that)
- Inversion
- Occam’s razor (simplest solution is the best one)
- Margin of Safety
What are some of your mental models, and how do they help you ? Let me know.
Social proof. Undeniable.
Latticework should be mentioned here.
Yes. Read this on Ycombinator on Munger. https://old.ycombinator.com/munger.html