Where to Invest in Network Effects: Unleashing the Power of Platform Applications

Where to Invest in Network Effects: Unleashing the Power of Platform Applications

In the world of technology and innovation, hardware platforms have always been the catalysts for massive waves of value creation. Companies like Apple, Microsoft, and Intel have all experienced tremendous success by introducing groundbreaking hardware platforms. However, what many people fail to realize is that the majority of the value created by these platforms is not captured by the hardware companies themselves. Instead, it is the applications built on top of these platforms that truly capture the lion's share of the value.

Applications are essentially the software that runs on these hardware platforms. They unlock new possibilities and cater to the specific needs of users. The early application companies on each new hardware platform have the opportunity to capture the most valuable needs first. However, there is a unique type of application that stands out from the rest - Platform Applications.

Platform Applications are not hardware platforms themselves, but they behave like platforms. They create their own ecosystem of value creation and capture a significant portion of that value. Companies built on top of these Platform Applications or around them become part of this ecosystem and benefit from the network effects they generate.

Network effects are the key to the success of Platform Applications. They allow these applications to grow rapidly and become dominant in their respective markets. As more users join the platform, the value of the platform increases, attracting even more users and creating a virtuous cycle of growth and value creation.

So, what does this tell us about the future of investment opportunities? Firstly, it is crucial to look for remaining Platform Applications or Main Applications on mobile or the Internet. These applications have the potential to capture a significant portion of the value in their respective markets. By identifying and investing in these applications early on, investors can position themselves for substantial returns.

Secondly, it is important to pursue core innovation in laggard verticals. Many industries, such as enterprise, financial services, healthcare, and government, still have significant room for innovation. Due to regulatory constraints or structural challenges, innovation in these verticals has been relatively slow. However, by focusing on these areas and investing in companies that bring innovation to the table, investors can tap into untapped markets and unlock tremendous value.

Lastly, emerging hardware platforms present exciting opportunities for investment. With multiple new hardware platforms emerging simultaneously, there is a wealth of untapped potential waiting to be explored. By identifying Platform Applications on these emerging platforms and investing in companies that leverage their network effects, investors can position themselves at the forefront of innovation and value creation.

In a world where lists have become the new search, it is crucial to understand the dynamics of curation and search. Benedict Evans, a renowned technology analyst, points out that all curation grows until it requires search, and all search grows until it requires curation. This statement highlights the two different approaches to organizing and accessing information.

Using a list as a means of organizing information has its advantages. It allows for constraint and curation, catering to specific needs and preferences. Companies like Yelp and online fashion platforms have successfully utilized this approach to provide users with curated lists of products or services. However, the scalability of lists becomes a challenge as they grow larger. Yahoo's hierarchical directory, for example, reached a point where it became too big to be browsed and required search functionality.

On the other hand, search allows for flexibility and the ability to find specific information quickly. Companies like Google have built their success on providing users with powerful search capabilities. However, as the amount of information available continues to grow exponentially, search alone becomes overwhelming and requires curation to filter out irrelevant or low-quality results.

Understanding the dynamics of curation and search is crucial for investors and entrepreneurs alike. It highlights the importance of finding the right balance between constraint and flexibility when building platforms or applications. By incorporating elements of both curation and search, companies can provide users with curated lists while also enabling them to search for specific information when needed.

In conclusion, investing in network effects requires a deep understanding of the dynamics of platform applications, emerging hardware platforms, and the balance between curation and search. By identifying and investing in platform applications on mobile or the Internet, pursuing core innovation in laggard verticals, and exploring opportunities on emerging hardware platforms, investors can position themselves for success in the rapidly evolving tech landscape. Additionally, incorporating elements of both curation and search can help companies build scalable and user-friendly platforms that capture the value of network effects. The future holds immense potential for those who can harness the power of network effects and leverage them to create value and drive innovation.