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Babble

Of course Ebay, msft and goog succeeded partlt because of network effects....but there is many more businesses with network effects that never succeeded or never really made money from it.

Ever heard of the survivorship bias?

Survivorship biases, arising from the fact that we see only winners and get a distorted view of the odds.
Conventionally, when something or someone is successful, we assume that the extent of the success is proportional to some underlying measure of merit or significance. Successful artists are creative geniuses, successful leaders are visionaries, and successful products are just what consumers were looking for. Success, however, is a descriptor that can only be applied after the fact, and with hindsight it is easy to be wise. Our typically outcome-oriented view of the world, therefore, leads us to attribute the success of something to whatever characteristics it happens to exhibit, whether or not those characteristics were ever recognized as special beforehand.

What we don’t generally consider is that the very same thing, with the very same characteristics, just as easily could have been dismal failure. Nor do we typically waste much time lamenting the multitude of unsuccessful innovations that also could have been contenders had their circumstances been perhaps slightly different. History, in other words, has a tendency to ignore the things that might have happened but did not. Obviously, what actually happened is more relevant to our current circumstances than what didn’t. But we have an additional predisposition to assume that the actual outcome was somehow preferred over all other possibilities, and this is where our perceptions of the world can misconstrue arbitrariness for order. From a scientific point of view, therefore, if we want to understand what might happen in the future, it is critical to consider not only what happened but also what could have happened.

Network effects is one of the reasons MSFT succeeded, but I would say MSFT's ability to achieve architectural control over its value chain was even more important.

I'm personally unconvnced goog has a sustainable advantage...the switching are just too low...I'm curious to see if goog will still be so succesful some years from now. Anyway, the stocks reflects way too high expectations.

The same can be said about ebay.

In short, network effects are an importnat driver of competitive advantage, but there is much more needed to truly create a sustainable competitive advantage.

alexander
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