Ep. 7 - Network Problems Demand Network Solutions (NFX Masterclass)

SPEAKER_1 (0:00)

You're listening to episode seven on why network problems demand network solutions from the NetworkFX Masterclass here on the NFX Podcast. This episode is hosted by general partner James Currier as he discusses how network effect businesses are reshaping the world, why it's our responsibility to design and thoughtfully set up social contracts with your different constituents and the need to have a perspective about what you are giving and getting from the people on these networks.

James Currier (0:29)

So how are you going to run your network effect business? I mean, now that the internet's here, now that Web3 is here, and now that you understand about network effects, you have lightning in your hands. So let's take a historical step back. Where are we now? We've always had networks, right? As soon as we had 10,000 people living near each other 8,000 years ago, you had a commerce network. You had network effects playing out around marketplaces where people would gather and trade. They just played out in slow motion. They just played out at small scale. Now that we've got the internet, of course, we've got billions of people connected, and it's happening in an instant. Geography is gone. Time is gone. We're at 1,000x what it used to be. It's a different order of magnitude. However, even back then, they were dealing with power laws. They were dealing with this conundrum of the fact that once networks form, power laws form. And we are struggling with it today as we look at income disparity and outcome disparity in our own societies. And the internet is only accelerating these power laws. The way we say it is the degree of the power law is getting greater. Okay, so you have just Bezos with 300 billion, and Elon Musk with 250 billion, or whatever it is. That's incredible quantities, accretions of capital that the network is driving to the peaks of the power law. And by power law, we just mean that the people at the top have so much more than the next person, the next person. So you might think that the top person has two times as much as the next person, who has two times as much as the next person. And then you have this very long tail for the 95 percent, who get a smaller percentage of society's wealth and outcome, or status, or appearance, or attention. Okay, so everything in a network conforms to a power law. It has always been thus, it will always thus be. But it's a problem, because 95 percent of people are in the long tail, and only the very people at the top get to have all the spoils. And it makes us all upset that it has to be so disparate. The business you start is likely, if it's got a network effect, going to create a similar power law among your users, perhaps among your employees, some of which will earn great riches and others who will earn some. Okay? And so you have to think about how you're going to operate within this context. Now, years ago, Alvin Toffler wrote a book called Future Shock in 1970, in which case he laid out that we used to have the agrarian economy, where 95 percent of us were involved with making food. Now, we're down to less than 1 percent of our society. It's transitioned. The second economy was the scale economy, where it was manufacturing, where we learned to have factories manufacture large things. And there was a lot of people who were very upset with this phase, right? Dickens wrote about the conditions that people were living in in London in the 1850s, now that we had these factories and the smoke was being belched out and no one was really enjoying their lives, all being slaves to this new machine. And then we had Marx come along, and he, you know, hysterical 28-year-old talking about the two tribes of the winners and losers in this new economy and what should thus take place because the losers should be on top, et cetera, et cetera. That's all that Marxism. There was a lot of upset about this new way as we moved from agrarian economy to industrial economy. And in 1970, Toffler said, We're now moving into the information economy, but he didn't have the benefit in that time of seeing the Internet. If he had, I don't think he would have called it the information economy. He would have called it the network economy or the network economy, because what we're seeing now that we have the Internet and Web 3 is that the means of wealth creation is the network. Just like it was with the industrial age, the means of wealth creation were the manufacturing lines. Now, the means of production are the networks themselves. And so, there's this increase of this power law, because we can now reach billions overnight, okay? But it's the same math playing out just in more extreme forms over time, and we are now in the networked age. So how do we know that we are now in the networked age? Well, number one, if you look at the top 13 market cap companies in the world, 15, 20 years ago, it was mostly industrial age companies, oil companies, manufacturing companies, GE, GM, IBM, blah, blah. Today, it's Apple, it's Google, it's Facebook, it's these network effect businesses that are built on digital technology. Okay? That's one way that you can see that we are in the network age. We now have three billion people attached to the network, and we can all communicate with each other. And this, those people account for 90 or 95% of all the economic activity in the world. Now, 100 years ago, people were in their separate geographies, they were in their separate industries. The connectivity was slow, and it was imperfect. Now, it's complete and perfect and instant. Okay? We are in this network age, and the capital, the wealth, and the status are flowing to the network, to the central node of the network.