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8 Jul

Steaks in a pan

We've all heard of network effects — how every new member added to the network increases the value of the network.

Network effects are usually a positive phenomenon for two-sided marketplaces and social media platforms that benefit from discovery and connections. It's in the best interests of a marketplace or a social platform to scale up rapidly, as the network effects it benefits from will create a moat around the business.

But have you heard of negative network effects?

In a negative network effect as the network grows in usage or scale, the value of the platform shrinks instead of growing. There are many reasons why this might happen.

1. Network congestion

A common example is road traffic. Every car added on the road worsens the experience for the existing cars on the road. Every new person entering the Starbucks you're working out of hampers your work experience by adding to the noise. In every P2P file-sharing network, every added user who downloads more than uploads decreases the value of the network.

(That's why seeding your torrents is important, friends.)

2. Network pollution

This is a common phenomenon within communities that scale up too fast. The more members that join, the lesser the likelihood that the ones who are joining share the same values as the people who first started the community. As a result, more spam and noise enter the forums and discussion channels. The value of the network drops as more people get added to it.

Facebook is a social media platform that fell prey to this phenomenon. What was initially a space for youngsters to chill with their friends without fearing judgment quickly turned into a family gathering where you could now only share family-friendly stuff.

This also happens with the fanbase of niche artists as they rise in popularity. As a fan, when the artist you support gets more and more famous, your experience progressively gets worse: tickets get more expensive and concerts get less intimate.

This is also what happened to Clubhouse. And Google Search. All I can see on the first page of search results are SEO articles without any substance. It's sad.

How do you solve for negative network effects?

1. Moderation

As the size of the platform increases, you will need more moderators to ensure quality control and wean out bad actors from the platform. Failing to do so will mean that the bad actors will slowly force all the good actors to leave the platform.

2. Curation

The internet is in itself a huge platform that got overwhelmed with information, overwhelming you in turn. But you cannot live without the internet, it's almost like your second brain at this point. In order to stay sane, you choose to curate your feeds instead or choose to follow trusted curators who do it for you.

3. Search

Amazon, Netflix, Airbnb… all got bigger and better over time, with more selection. But without recommendations, categorical search, and filters, they would become unbearable to use.

Negative network effects are a necessary hazard of scale.

They water down everything early adopters love into a shadow of themselves. Think of all the beautiful, serene and quiet places you used to go to for a retreat, that have now turned into highly commercialized and noisy tourist destinations.

That's negative network effects for you.

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