Former Qualcomm software engineer Anu Hariharan describes early startup network effects as:
- In year 1 your goal is to achieve at least 1,000 users that love you
- But by year 2 you should be asking, “what is the driver of critical mass, and then using that as an algorithm to build scale”
Great network effects don’t just happen, they are designed. When designed properly they can be powerful and provide a benefit to users while creating a barrier-to-entry to the competition. The benefit is that the end-user is gaining value from the fact that more users are on the network using the same product, and the barrier is that a competitor will have to spend an insurmountable amount of money to catch up.
A good example of an Ethereum competitor spending dollars and playing catch-up is Avalanche. Not only by using a $180M DeFi-mining incentive scheme, but by also going as far as advertising in the NYC Subway system:
Early Uber employee Andrew Chen tells the story of when Uber’s Network Effects were being challenged by Lyft. By a creating a Referral Incentive, Lyft had caused drivers to switch over in droves. Driver referrals were structured as a give/get incentive — give $250 and get $250 when your friend signs up to drive. This attack on the Uber’s moat led to former Uber CEO Travis Kalanick asking the question, “What if… we did a $750 / $750 referral bonus here in SF, LA, and San Diego?”
What are the key elements of network effects and has MakerDAO achieved them with its core product, DAI?
First, let’s identify them:
- What is the primary value proposition for the User? Can value be created w/DAI? Yesssss, I believe we can All agree that DAI has achieved value proposition. Food-for-thought: has value been created in single player mode only, or is DAI useless without multi-player mode? Like Skype remember them.
- Second, has DAI achieved DeFi growth organically without spending a fortune on marketing programs? Indeed, I believe we can All agree that DAI has achieved organic growth within DeFi. But outside of DeFi?
- Third, engagement trigger. What is the threshold that a customer should cross to likely become a fully-engaged customer?
- And last, what is the primary thing that will further accelerate DAI’s network effects? What will make DAI adoption accelerate?
Looking at the past performers, movements like Facebook, Airbnb, and others—gained network effects by accelerating their networks via incentives, bringing users together(Airbnb/Uber), targeting specific geographical areas (Cities), events, etc., in order to gain critical mass.
So, as we enter 2022—how does DAI build its network effects? What type of Network does the Maker Community want to build? What should be the entry point be to build a large scalable network effect, what are the growth levers, tactics, hacks, and the mass inflection point? How do we build more liquidity, how do we solve the chicken and egg problem of getting enough supply & demand to the masses at the same time? What are the complimentary products that will increase DAI usage?
No, they are not the same. Virility is about the speed of adoption, it is more about the distribution than about the product. Sure they can happen at the same time, but they shouldn’t be confused. So we can say that DAI has some network effects, but does it have virility?
As we kickoff the first week of January, I ask you community members—what can you do to increase DAI network effects.