The Idea of Value Chains

There are several types of network effect that should be properly understood:

• Direct network effects: they occur when the number of users has a direct impact on the value of a product.
• Indirect network effects: they occur in two-sided (or multi...

Switching costs describe how difficult or expensive it is for a user to switch from one product to another.

Multihoming costs explain how easy or likely it is to use multiple competing networks simultaneously.

In general, the higher t...

A good part of the most successful companies leverage the power of the network effect as their competitive advantage.

Network effects occur when the value of a product or service is subject to the number of users. A positive network effect ...

The world’s most successful companies all exhibit some form of structural competitive advantage: A defensibility mechanism that protects their margins and profits from competitors over long periods of time.

If you want to understand the power dynamics between different platforms, aggregators and other players in a tech ecosystem, it’s better to look at them as a vertical stack with different layers.

On each layer of the stack, companies are trying to create value and to captur...

Telephone and railroads companies are more defensible than companies such as Facebook and Google because their business mainly relies on atoms instead of bits.

In contrast to bits, atoms have marginal costs. You can copy and paste a piece...

As a result of the vertical stack, companies are trying to:

1. Create layers on top of their business (everyone wants to be a platform)
2. Move down the stack to get closer to the base layer (to increase defensibility)

The base layer is the final interface between the stack and the end user – which is typically an operating system tied to a piece of hardware.