About Andrei & Julian’s
Platform businesses leveraging network effects have become the most powerful businesses in the world. Indeed, today they include many of the world’s most valuable companies. Not surprisingly, there are thousands of early-stage startups attempting to leverage network effects in order to become the next Airbnb, Alibaba, Facebook, Google or Uber. A few will succeed and most will fail. Partly because of poor execution, and partly because of unrealistic claims and expectations about the defensibility that network effects can create for their specific businesses.
Participants in this course will learn how to rigorously evaluate the upside potential and defensibility of business opportunities with network effects. What separates network effects that can support defensible businesses from those that do not? What are the key metrics to look at when evaluating businesses with network effects? How do competitive dynamics work in the presence of network effects and what are the key risks of disruption? What are the common pitfalls to avoid when evaluating investment opportunities with network effects?
To answer these questions, we will leverage economics concepts and frameworks that we have developed during our over 20 years of research on platform businesses, and that we use extensively in our own consulting and angel investing activities. We will apply these frameworks to discuss a wide range of startups and mature tech firms.
Session 1 - Network Effects and Defensibility
Today, almost everyone knows that network effects, when present, can be a great source of defensibility and unfair competitive advantage. However, most investors and entrepreneurs do not recognize there is huge variance in terms of how weak or strong network effects are, which ultimately determines whether or not they create defensible competitive positions. Accordingly, in the first session we will answer the following questions:
• What are the various types of network effects?
• What factors determine whether they are strong/weak and whether they create defensible moats?
• How can network effects be enhanced by product design?
Session 2 - Data Network Effects
Similar confusions and hype abound about the role of data and AI in creating sustainable competitive advantage. Accordingly, in the second session we will address the following questions:
• What are the different types of data-enabled learning and what factors determine the extent of compounding competitive advantage businesses can obtain from data?
• Under what conditions does data-enabled learning lead to network effects and how do data network effects compare with regular network effects?
• What are the most promising business applications of data and AI?
Session 3 - Evaluating businesses with network effects
While the first two sessions focus on analyzing the potential for network effects and data to create competitive advantage, this session will focus on how to evaluate whether specific businesses are realizing that potential.
• What are the key metrics to look at when evaluating businesses with network effects?
• How to evaluate the platform potential of a business?
• How to evaluate the opportunities created by mature platforms for “rolling up” sellers on those platforms?
• What are the common pitfalls to avoid when evaluating businesses with network effects?
Session 4 - Looking ahead
New technologies like the blockchain and AI will usher in the next wave of platform businesses with network effects. Meanwhile, the unprecedented power of some of the large established platforms is creating resentment by their participants (e.g. Epic Games vs. Apple, restaurants vs. DoorDash and Grubhub) and attracting increased regulatory scrutiny. In this last session, we will address the following questions:
• What will the next wave of platforms look like?
• What will be the impact of web 3.0 on today’s large, centralized digital platforms?
• What new opportunities are being created by mature platforms that attempt to extract too much value from their participants?
• What will be the impact of big-tech regulation on the attractiveness of investing in network effects businesses?