Akira The Don, Naval Ravikant - Network Effects lyrics

Network effects, network effects
Free leverage

Network effects, network effects
Network effects free leverage
Network effects, network effects
Network effects free leverage

Bob Metcalfe, who created Ethernet
Famously coined Metcalfe's Law
Which is the value of a
Network is proportional to the
Square of the number of nodes in the network
(Nodes in the network)
(Nodes in the network)
If a network of size 10 would
Have a value of a hundred
Network of a size hundred would
Have a value of 10, 000
It's not just 10X more, it's 100X more
So you want to be in
A network effect business
If you're number one in
The network effect business
You win everything
One of the dirty secrets of
Silicon Valley is that a lot of the winning
Businesses are natural monopolies

Network effects, network effects
Network effects free leverage
Network effects, network effects
Network effects free leverage

What is a network effect?
Let's define it precisely
A network effect is when each additional user
Adds value to the existing user base
So your users themselves are creating some
Value for the existing users
The classic example that I think
Everybody can understand is language
Let's say that there's a hundred
People live in a community
Speak 10 different languages and each person
Just speaks one of those 10
You're having to translate all the time
It's incredibly painful
If all hundred of you
Spoke the same language
It would add tremendous value
10 people start off speaking 10 languages
One extra person learns English
Well, now all of a sudden 11 people
Know English so that the next
Person who comes in to learn new
Language probably gonna choose English
At some point, let's say English gets
To 20 or 25 people, it's done
It's just gonna own the entire
Language marketplace and the
Rest of the languages will get competed out

Network effects, network effects
Network effects free leverage
Network effects, network effects
Network effects free leverage

The network effect is are
Very powerful concept
When you're picking a business model
It's really good idea to pick
A model where you can
Benefit from network effects
Low marginal costs, and scale
Economies, and these tend to go together
Like anything that has zero marginal cost
Of production obviously has scale economies
And things that have zero marginal cost
Of reproductions very often tend
To have network effects because it
Doesn't cost you anything more
To stamp out the thing so
Then you can just create
Little hooks for users to add
Value to each other
So you should always be thinking about
How your user, your customers
Add value to each other
Because that is the ultimate form of leverage
You're on the beach in the
Bahamas or you're sleeping at
Night and your customers are adding
Value to each other

Network effects, network effects
Network effects free leverage
Network effects, network effects
Network effects free leverage

Network effects, network effects
Network effects free leverage
Network effects, network effects
Network effects free leverage