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Network Effects, Moats, & the Business of web3

a16z Podcast

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Network Effects and Value Creation in Platforms

Using credit cards and newspapers as examples, the text explores the concept of network effects and platform externalities. It explains that while credit cards benefit both cardholders and merchants, newspapers can have negative externalities due to excessive advertising. However, the overall network still grows as more users join. The focus should be on the total value created for all users, rather than individual users. If a platform becomes unpleasant, users may leave if they have alternative options. Difficulties in exiting in web two lead to low bargaining power and an extractive equilibrium.

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