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Hidden Networks
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Hidden Networks

Network Effects That Don’t Look Like Network Effects

D'Arcy Coolican
A16Z, 2019
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Some network effects (when a network gains more value to its users as more people participate in its platform) don’t show up in the usual metrics. Their hidden nature makes them hard to measure – but they can confer significant long-term competitive advantages. In an insightful article for A16Z.com, D’Arcy Coolican – an Andreessen Horowitz partner and a co-founder of the peer-to-peer lending platform Frank – shines a light on hidden networks, giving useful guidelines for identifying when they’re at work.

Summary

Some companies have hidden networks that yield network effects not apparent in the usual metrics.

Many of the most important internet projects are based on so-called network effects, which means that the network gains more value to its users when more people participate in the platform. Examples include Wikipedia, Facebook and bitcoin. In some cases, a hidden network exerts delayed effects; in other cases, a company builds an incomplete network – often, as a strategic choice. In time, when the network effects begin to reveal themselves or the final pieces of the network fall into place, the network’s actual strength becomes evident.

Hidden networks...

About the Author

D’Arcy Coolican is an investment partner at Andreessen Horowitz and a co-founder of the P2P lending platform Frank.

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