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Kindle Notes & Highlights
by
Andrew Chen
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January 6 - December 31, 2022
At the intersection of the tool and network, eventually, a pivot has to happen. Mechanically, this happens in multiple ways: This could be as simple as Instagram’s decision to open the app to a home screen feed of photos from other users. As a tool, it might be more efficient to show its photo-editing interface first, but Instagram emphasizes the network to show the feed, popular photos, and people recommendations. A big notifications icon with a red number on it filled with likes and follows further emphasizes the network feature.
The tool-to-network shift is a specialized strategy—not
Tool, network Create + share with others (Instagram, YouTube, G Suite, LinkedIn) Organize + collaborate with others (Pinterest, Asana, Dropbox) System of record + keep up to date with others (OpenTable, GitHub) Look up + contribute with others (Zillow, Glassdoor, Yelp)
Building a tool/network combo is a powerful approach, but it doesn’t always work. Pivoting users from tool to network can be hard. Sometimes only a small percentage will make the transition, since it requires them to change their behavior—to click on a notification, or a new piece of user interface, introducing them to the network—and then they have to stick. A lot of people can get stuck on just the tool. Not every feature can be a social network.
On the other end of the spectrum are tools and networks that are highly integrated, like Dropbox’s folder-sharing functionality, which defines its network. This type of integration is so elegant that it would feel like an obvious missing functionality if it didn’t exist—users would likely drive the product toward a network, not away from it.
The common wisdom was, “If you have a chicken and egg problem—buy the chicken.”
Using money as a growth lever can feel like a dangerous move, and it should only be executed at the right time. While establishing an initial network, it usually doesn’t make sense for an underresourced startup to throw a lot of money around to get
Sometimes the concept of “paying up” is less about financial spending and much more about taking time and effort—as smaller companies have to do when they partner with larger players. These partnerships are often asymmetrical, where the smaller player must customize and build product for their partner, in exchange for access to distribution or revenue. Usually this doesn’t work, but there are a few key examples where it has—starting with Microsoft.
Once you are able to create a few atomic networks, you might want to buy your way into an entire market.
No one wants to live in a ghost town. No one wants to join an empty community. In the early days, it was our job each day to make sure there was good content on the front page. We’d post it ourselves, using dozens of dummy accounts. Otherwise the community might dry up.42
Reddit’s use of Flintstoning is similar to the strategy used by companies like Yelp and Quora—to fill in the hard side of the network, which were also content creators. Study the pattern of Flintstoning across industries and you’ll see the focus tends to be on replicating the hard side of the network with employees, contractors, and other direct efforts.
Flinstoning can be thought of as a spectrum: Fully manual, human-powered efforts Hybrid, where software suggests actions to take, but people are in the loop Automated, powered by algorithms A fully manual version of Steve Huffman’s Reddit launch would have been to submit links by hand, and to hire a team of contractors to create content. That was effectively what Steve did himself at the beginning. It might seem inefficient, but companies like Yelp and Quora relied on employees and other staff to build their library of reviews and Q&A respectively, so it can be done. And as I mentioned
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The games industry calls this “first-party content,” and it can be a serious investment.
“Product can solve problems, but it’s slow. Ops can do it fast.”
The Ops team culture rewarded experimentation, and after ice cream came Uber Puppies, Uber Mariachi Band, Uber Health (for flu shots), Uber Lion Dance (to celebrate Chinese New Year!), and dozens of other variations from around the world. The Ops teams would “holidize” their efforts, aligning special dates with product features that promoted growth.
But don’t completely count out sales—it’s an important lever. Paul Graham of YCombinator famously argued that entrepreneurs should “Do things that don’t scale.” Embedded within this maxim is the idea that manually finding and convincing users, one by one, is a good way to start:
The years before and after 2012 are critical middle chapters in Dropbox’s startup journey. Over its decade-long journey from its founding to its IPO, the company had learned the networks and attributes of its most valuable users, introduced key features to appeal to businesses, and added new marketing channels. All of these efforts helped scale the network effects into Escape Velocity, leading it toward a successful IPO.
Gain or loss in active users = New + Reactivated − Churned
This month’s actives = Last month’s actives + gain or loss
Every product can be thought of in this way, and it’s the product team’s goal to increase each of these metrics. However, networked products are special in how they can leverage their networks to drive up each of these variables—something that traditional products can’t.
As a rough benchmark for evaluating startups at Andreessen Horowitz, I often look for a minimum baseline of 60 percent retention after day 1, 30 percent after day 7, and 15 percent at day 30, where the curve eventually levels out. It’s usually only the networked products that can exceed these numbers.
Their unique ability to tap into the Engagement network effect lets them drive up retention over time—first, by creating new use cases as the network develops; then by reinforcing the core “loop” of the product; and lastly, by reactivating churned users. I’ll unpack how these levers work.
Improving any step in the loop benefits all downstream actions.
Users need to trust the loop to rely on it. If the network is too small or too inactive and the loop breaks, then users will be less likely to use it in the future.
The Escape Velocity phase is about accelerating these loops, by making each stage of the loop perform better.
Do your users have enough connections to consistently close the loop, and if not, how do you quickly get a critical density of networks around them?
Networked products, on the other hand, have the unique capability to reactivate these users by enlisting active users to bring them back.
Getting an email notification that says your boss just shared a folder with you is a lot more compelling than a marketing message. A notification that a close friend just joined an app you tried a month ago is a lot more engaging than an announcement about new features.
These churned users are sometimes called “dark nodes.” When they are surrounded by deeply engaged colleagues and friends, even if they’ve been inactive for months, they are often flipped back into an active user.
To amplify the Engagement Effect as it relates to reactivation, the key question to ask is, what is the experience of a churned user?
If you’re inactive, what kinds of notifications are you getting from other users, and are they compelling enough to bring you back? Almost always, churned users don’t receive any communication at all.
The other question to ask is, if a user wants to reactivate, how hard is it? At Uber, we had a staggering statistic where several million users were failing their password recovery per week—how do you make this much easier, and treat reactivation with the same seriousness as the sign-up process?
In fact, it’s the psychological elements, combined with the value proposition of a product, that make the best viral growth strategies difficult to copy. They are often unique to the product itself—making them proprietary and more defensible. Dropbox’s folder-sharing viral loop is effective, but only those in a similar product category can utilize the same type of loop. Videoconference software like Zoom makes it easy to add meeting details that include links to the software itself—again, hard to copy unless your product has something to do with meetings.
However, even if chain letters have network effects, they suffer from being heavily oriented around viral acquisition, and lacking strong retention mechanics. Ultimately the value of these networks is primarily driven by novelty and requires a constant inflow of new people into the chain.
It’s for this reason that networks built through viral growth are healthier and more engaged than those that are launched in the typical “Big Bang” fashion, as Google+ did years back. Big Bang Launches can be great at landing, but often fail at expanding—and as we discussed, many networks with low density and low engagement will fail.
Almost every large marketplace company is built on an underutilized asset, whether that’s unused real estate in the case of Airbnb, a car that’s sitting idle for Uber, or unused time for many labor marketplaces. Marketplaces allow owners of these idle assets the ability to monetize them more efficiently as the network grows larger. This form of Economic network effect can be strengthened as more participants join a network, because the additional data allows for personalization and targeting.
As a result, Dropbox will feel less pressure to match the lower pricing of a new competitor. It may be easy to copy features, but it’s nearly impossible to copy a network.
An exponential growth curve turns into a squiggle. Why? Because there are negative forces that appear during the late stage of a network’s life cycle. Market Saturation. Churn from early users. Bad behavior from trolls, spammers, and fraudsters. Lower-quality engagement from new users. Regulatory action. A degraded product experience, as too many users join.
The real magic starts to happen once [you] have enough followers on Twitch, and you consistently have viewers every time you start streaming. Then every session on Twitch becomes fun, since there’s always an audience. But it’s even more fun to make money. Once there’s enough viewers, then you’ll eventually make your first dollar. This is a real aha moment—our streamers talk about how making even $20 or $50 a month is an eye-opener. But then build enough of an audience, and eventually, it’s possible to “go pro” and just work by streaming full-time.
It’s all about the streamers. It’s about helping streamers create content, find audiences, and monetize.
“Growth had plateaued around 90 million people,” Zuckerberg recalls. “I remember people saying it’s not clear if it was ever going to get past 100 million at that time. We basically hit a wall and we needed to focus on that.”60
Your top friend in a given week contributes 25% of Snap send volume. By the time you get to 18 friends, each incremental friend contributes less than 1% of total Snap send volume each.
This provides another way to think of Facebook’s famous “7 friends in 10 days” heuristic. Getting to 7 connections is great, but what about 14—is that better? Definitely. But is it 2x better? Probably not.
The best practice is for products—whether they have network effects or not—to constantly layer on new channels. A consumer-facing app should invest more in paid marketing on YouTube, Snapchat, Instagram, and other ad platforms. But it should also work on its viral growth loops, and engage content creators. It might also focus on content marketing—building SEO to rank more highly organically on Google. The key for a new product team is to understand which channels best fit its product, and to hire the relevant people who’ve already done it.
For example, in Twitch’s journey, the team deeply focused on creators, giving them better tools and monetization, which in turn caused them to become more active. More satisfied creators meant they would broadcast live video streams more often, bringing in more viewers, which drove further engagement and monetization. It might have been easy to think they should just double down on their marketing spend, but instead the team looked toward amplifying the network effects that engaged its streamers.
Reddit’s moderators of its communities—their hard side, who organize, create, and curate the people and content—have protested policies by “going dark,” substantially reducing the site’s engagement and traffic.
A networked product generally wants to nudge its ecosystem toward professionalization, because it helps scale the hard side. The idea is to transform mom-and-pop sellers into power sellers, or solo app developers into software companies. This is a big and important transition since it improves the capacity of each member of the hard side, as the sheer numbers begin to slow down because of saturation.
When a network becomes large, rich, and diverse, it’s often described as an “Economy”—you may have heard about the Gig Economy, the Attention Economy, the Creator Economy, and so on. Each of these respectively encompasses the worlds of Airbnb/Uber/Instacart, Facebook/Google, TikTok/YouTube/Substack, etc. And in turn, a rich ecosystem of players emerges.
