Ep 9: Why Network Effects Are (Even) More Powerful In Web3 (NFX Masterclass)

SPEAKER_1 (0:00)

You're listening to episode 9 on Network Effects and Web 3 from the Network Effects Masterclass here on the NFX Podcast. In Web 2, Network Effects were nice to have as companies scaled and carved out their section in the business world. But now, they're more important than ever. You'll hear NFX general partner Morgan Beller uncover why in Web 3, Network Effects are fundamental and critical to survival. You also get a brief history of the evolution of the web and our three stage framework for building a startup in the world of Web 3 Let's jump in.

Morgan Beller (0:29)

I'm Morgan Beller and I'm a general partner at NFX. Prior to NFX, I was at Facebook where I was a co-creator of the DM project, formerly known as Libra, which was Facebook's cryptocurrency effort. And a life before that, I was at Andreessen Horowitz where I looked at some crypto deals around 2013, 2014 So I've been in and around this world that we now call Web 3 for the better part of eight years. Now that I'm at NFX, I meet with Web 3 founders and we talk about the power of network effects and how network effects were nice to have in Web 2, but really, really a need to have in Web 3 In this section, we're going to go over several areas. One is we believe that Web 3 founders and companies need to be built in almost this inverted way. So as discussed, outside the map, there's the social aspect and we believe that Web 3 products start there, like growing your discord, growing your community, and then bringing the product towards the inside the map. So we'll talk about that inverted path. Then we'll talk about our three stage framework for early Web 3 founders. Then we'll start with my experience at Facebook, the strongest case study for network effects in Web 2 and how those learning lessons relate to my job in early stage founders today. And lastly, how Ethereum also has some parallels to everything that we've talked about in this section. Not to be too corny about it, but we see ourselves as kind of being the river guides for Web 2 founders trying to find their way into Web 3, but also for Web 3 founders trying to apply lessons from the Web 2 network effects world to Web 3 So with that, let's get started.

If you're new to Web 3, welcome. I was first introduced to Crypto, which is what it was called at the time, in 2013, when I was at Andres and Horowitz, and Biology Srinivasan joined, and he was preaching Crypto left, right, and center. I listened, and I went on walks with him, and I'm really grateful for that learning experience, but admittedly, I was too dumb then to fully get it and dedicate my life to it. So if you're new, welcome. It's still really early. And one way to think about Web 3 is relative to Web 2 and Web 1 So most of the world was introduced to Web 1 around 1994, and it was read-only. You could consume the Internet. You could not, I mean, very, very few people actually contributed to what was read on the Internet. Then around the 2000s, you had platforms start to emerge that were read and write. So you could consume content, but you could also create content. You could write a blog. You could post on Facebook. You could do a tweet. And now Web 3 is this concept of decentralized ownership of all of these platforms, and that's kind of the big unlock. So whereas Web 2, you maybe would read on Twitter, write on Reddit, but you didn't necessarily have ownership in those platforms. Maybe you own some Twitter shares, but that's different, and we can talk about it. But in Web 3, the creators are also the consumers, but are also the owners of these products and platforms, and that changes the whole dynamic. There are many definitions of Web 3, and in NFX, of course, we created our own. So our definition of Web 3 is any product that equalizes ownership and participation across the consumers and creators of products and platforms. Alongside our definition, there's also this ethos of Web 3, and by the definition of distributing the sense of ownership and participation, the ethos is also this shared sense of ownership, in that not only do you tactically own a piece of these protocols, but in virtue of doing so, you also feel like a real owner and contributor to the products and the protocols and the platforms that you interact with. So you engage differently, you tell your friends to join differently, you care differently, so that distributed sense of ownership and participation really is pervasive across how you feel, interact, and share that product as well.