The network effects of syndicating unprecedented levels of coordination based on future commitments
TL;DR While we can solve Ethereum’s scalability and on-boarding issues, the real opportunity is discovering a new collaboration playbook based on a syndication of open networks.
History Doesn’t Repeat — It Rhymes
Previous posts discussed how CREATE2 can solve the Ethereum New User Flow (ENUF) and provide a scalable layer2 first solution. There is a viable path for Ethereum to go mainstream. However, just because it can does not guarantee it will.
We don’t know what the next “killer app” is going to be — so looking back at history to find context may help inform us better. Humans are good at pattern recognition because it allows us to predict and expect what is coming. Some have said that crypto is like the Web in the “mid-90's” — we are still in the infrastructure phase.
However, if we can solve for using on-boarding and scalability with CREATE2, it may be instructive to instead compare the beginning of 2018 to the height of the dot-com bubble and the current market to the dot-com crash. “The dot-com bubble was fed by cheap money, easy capital, market overconfidence and pure speculation”. Okay, that sounds familiar. “Many investors were eager to invest, at any valuation, in any dot-com company, especially if it had one of the Internet-related prefixes or a “.com” suffix in its name”. Just swap ‘.com’ with ‘blockchain’ and it is hard not to compare this to the ICO mania of 2017 which led to the crypto bear market of 2018.
Rewinding back to the early 2000’s, some saw the dot-com crash as a blessing in disguise. Those who were left were given the license and freedom to experiment. It was during the dot-com winter of 2000 that Google released AdWords. It was also during this bear market (which lasted approximately two and half years) that Friendster launched, followed by MySpace the next year and Facebook soon after that. This era of startups focused on user-generated content (UGC), ushering in Web2.0. The lesson learned was that facilitating audience interaction led to defensible network effects (which are well known now). It took the speculation and subsequent market crash for Internet1.0 to reach its potential.
Almost two decades later, whether good or bad, we are experiencing the consequences of these networks effects at scale. Nowadays if a startup is gaining traction, acquisition seems to be the only viable option (many parallels can be drawn to the pre-web era when Microsoft dominated the personal computer industry). The threat of incumbents copying your product as a feature with an audience at scale, coupled with the increasing cost of customer acquisition which comes from limited advertising space on these incumbent platforms, make acquisition the only logical conclusion. Some may argue that the window of opportunity for creating scalable audiences has passed (networks coming out of China, due to its market protection, being the exception that proves the rule).
The same could be said about engagement — 20 years ago a website had to compete against boredom at work, 10 years ago a mobile app had to compete against staring boredom standing in line, and today you have to displace another apps’ minutes. There is a streaming war currently being waged online (apps have quickly filled up a user’s every waking moment).
The Syndicalism of Network Effects
Just as the hypothesis of network effects were put to the test and proven during the rise of Web2.0, open networks — networks that share resources and responsibilities with their participants now have the opportunity to start experimenting with syndicated coordination. Syndicated network effects allow all network participants to share in the increased value of the network as more people use it.
Stepping out of the crypto bubble for a minute, there are wider consumer trends that are emerging that involve multimodal business models. They can compete because they are less dependent on advertising and unify the network through control of the payment rail. This model fits well for crypto in general.
China’s secret to success for the latest crop of networks is sharing distribution and traffic. Once a user has been acquired, each new network that joins is an up-sell to the user. This not only provides new services to the user, but also dramatically reduces acquisition costs for the new service. Just like the dot-com crash ushered in Web2.0, it may have taken the crypto crash of 2018 to usher in the beginnings of Internet2.0. This is a time to experiment and begin to understand the power of syndicated network effects. A future post will continue to explore the potential of a tokenized infrastructure and what this means for Internet2.0.