Building Networks

I had the privilege of hearing Albert Wenger speak this evening at the Entrepreneurs’ Roundtable in Microsoft’s New York office.  I met with him once before at Union Square’s open office hours a little over a year ago when I was working on a location-based service for live events.  Both then and tonight, Albert talked about the USV approach to investing in networks, the idea being that the only lasting competitive advantage on the web comes from establishing networks.

The web is generally a very fluid place for users.  The ‘next click is always free’ and attention is harder to capture than ever (and is being driven by different forces than just a few years ago).  Albert mentioned this evening that the scarcity of the web is attention, not publishing. In other words, it’s relatively easy to put something out, and content is in near-infinite supply as a result,  the real challenge is getting noticed.  A few years ago, one of the biggest solutions to the attention issue was getting up in organic search results, or paying for search in order to get traffic (attention) to your site. That’s been changed significantly as social media has altered the way we find and consume content on the web.  The Facebook stream is the new organic search result.

I think this thesis is what has driven new startups towards the user acquisition model in the web. Most new consumer-facing web businesses have focused less on ‘traffic’ and more on ‘users’.  The smartest businesses are leveraging a new user’s social graph in order to get their friends in on the experience, which creates value that cannot be replicated by a competitor.  Users don’t buy into a new service on the web based on feature sets, the stickiest users are actually buying into being a part of a network.

In the world of Facebook and Twitter, very large horizontal networks that have captured massive user bases, this probably means creating vertical networks that are still big enough opportunities to make them worth the effort and risk.  These opportunities can be identified by analyzing groups that have high-intensity shared needs and interests that cannot be satisfied by the larger players.  For example, AirBnb has built a network for people with apartments and people who need to rent for short durations.  Craigslist wasn’t doing this in a way that facilitated any trust, and Facebook doesn’t offer a place for these transactions–  so now Airbnb is on its way to becoming a billion dollar business.  I think there are still an incredible number of industries that haven’t been disrupted by the new way that we organize and consume information.  Even industries with existing players on the web, like tutoring or test prep, tend to replicate the real-world model online without considering the fact that the same assumptions that are required to make a real world business work are not the same assumptions required to make a web business work.

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4 thoughts on “Building Networks

  1. I have been surfing on-line graeter than 3 hours nowadays, yet I never found any attention-grabbing article like yours. It’s pretty price enough for me. Personally, if all website owners and bloggers made just right content as you probably did, the web will likely be a lot more useful than ever before.

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