Network Effects & Friendly Developer Moats

Crypto assets are unique in the sense that they are either natively baked into a network or exist on top of a network. There are many crypto assets but one, in particular, deserves your attention. The network is known as Ethereum and it has a native asset called Ether. Ethereum has the most daily users, daily transaction volume, the total number of assets built on top of the network and most importantly, the number of developers.

While Bitcoin is #1 when it comes to total network market capitalization and general market awareness, Ethereum will continue to gain notoriety in the space as it can do what Bitcoin cannot do; smart contractsprogrammable money and decentralized applications. Ethereum has developed an incredible network effect and developer moat during its past four years of existence. This will cause it to not only continue to grow rapidly, but with compounding effects as shown by Metcalfe’s Law.

Network effect is a phenomenon whereby increased numbers of people (developers, companies…etc) or participants (users, investors…etc) improve the value of a good or service. One way to judge a crypto asset’s network effect is to look at projects built on the network.

In the case of Ethereum, there are currently more than 2,600 decentralized applications. In comparison, its closest competitors are EOS.IO and BlockStack which have 297 and 250 applications respectively.

The problem for Ethereum competitors is that they are still building the primitive building blocks that are necessary to create more complex applications. Ethereum has been developing these building blocks over the past few years and includes things like decentralized exchangesoracles, and stable coins. These allow developers to build more complex applications through what is known as composability — the ability to leverage existing projects in order to build something completely new.

Ethereum Building Blocks — Source is Delphi Digital

Source: Delphi Digital

One great example of composability is Set Protocol. This utilizes Ethereum, a stable coin (Dai, built in 2017) and decentralized exchange (KyberSwap, built in 2018) in order to create automated asset management strategies which are sometimes called “autonomous money robots.”

Ethereum Composability — Source is Delphi Digital

Source: Delphi Digital

While there are already projects looking to compose Set Protocol into the next mind-blowing application, Set is just one example of many projects that were created through Ethereum composability.

The term network effect is not new and what we are seeing now is nearly identical to the growth of the internet.

“The internet was of relatively little value to anyone outside of the military and some research scientists at first, but as more users gained access to the Internet, they produced more content, information, and services.” — Wikipedia

This snowball effect that happened in the early days of the internet is happening now with Ethereum.

This network effect tends to create immense stickiness with builders which forms a developer moat. The majority of developers do not want to recreate an entire ecosystem just to deploy their new application successfully. This creates a chicken and egg problem for new networks as developers want access to the basic building blocks to create interesting and complex use cases, which sends them directly to the vibrant Ethereum ecosystem.

This post has only just scratched the surface of Ethereum, which is a constantly evolving organism and is nowhere near its final form. While it’s nearly a full-time job keeping tabs on this lush ecosystem, I do my best. If interested in learning more, feel free to reach out to me directly and I’ll be sure to point you to the best resources.

Marching Ahead to 2019

2019

Here is my take on the next 3 big trends to watch out as we march ahead into 2019.

1) Automation crossing over inflection point: Point I am making is progressing beyond task automation. For example, when we call a Bank, it really doesn’t matter whether a bot or a human reply from creating the net new value and better customer experience point of view. In fact, speaking to human can avoid following initial mundane activities alongside a BOT. Having a BOT may save cost and make operations efficient for a Bank, but what’s in it for the customer? Secondly, Automation has to elevate to be more intelligent and process-centric than taskmasters. That is what the inflection point for automation progressing to “creating value for consumers”.

2) “Shared to Distributed” economy/business models as a path forward: Over the past years Uber, Airbnb, Google and increasingly proliferated shared economy models are been successful use cases that rely on the contributions of users/external resources as a means to generate value within their own platforms. Unlike the Automation, here consumers get direct value from the shared economy models and better experience. But the shared economy model is still centralized and hence prevails risks limiting full potential. The shift is going to be towards a new model of decentralized organizations that are aggregating the resources of multiple people to provide a service to a very active group of consumers. This shift marks the advent of a new generation of “dematerialized” organizations that do not require physical offices, assets, or even employees.

3) The confluence of Digital technologies fuelling the next-level adaption/growth: We make a progress beyond adapting one or two digital forces towards the convergence of the ecosystem of digital technologies that drives the collective benefit of businesses, consumers and all stakeholders.

Disciplined Innovation

InnovationCan we practice innovation as a discipline? The answer is YES. The process of moving from idea to innovation can be practiced as any other discipline. Scratching the surface unveils the structure from past occurrences of innovations and how we can evolve a disciplined mindset. What makes us progress is the not the mindset of “all I know”, but “learn from the team” mindset. Disciplined innovation is a paradigm shift. I will discuss the framework of disciplined innovation with observations made from how some of the world’s leading innovators made great impressions including unicorns like Google, Facebook, Uber, Airbnb, and Netflix and the apparent demise of several long-standing established companies including Blockbuster, Nokia, Kodak etc.

First comes the mindset. Move from “Knower to Learner mindset”. Knower leader may play the game well, but Learner leader can change the game with the possibility of thinking and collaboration. Don’t limit the possibilities of ideas to take a diverge first and then converge to Core Idea. Practice “power of the pause”, which offers a moment to reflect on a particular situation at hand, to listen to other and blend with your own intuition to react. Expand the options and cultivate the mindset of possibility. Remeber what pioneered entrepreneurial leader Henry Forst said 1 century ago, ” Whether you believe you can do a thing or not, you are right”.

Second, develop start practicing innovation right now mentality. Don’t wait for that golden moment knock your door, start doing a little more of what you were doing already, a little faster and a little more inclusively. Focus first on problems, not solutions. You cannot solve exponential problems with linear mindset. Exponential mindset is incrementally progressive and pursued practicing a right-now approach.

Third, invest upfront and invest in a staged manner. Innovation and investments should go hand in hand demonstrating the efficiency and effectiveness of the process. Staging lets innovators and entrepreneurs abandon ventures with low early returns sorting out good projects. With based idea tested in a “Minimum Viable Product”, it is efficient to invest more in later stages. Innovation project stages might be deterministic, in a reality financing stages simply mimic the development process of the project with trade-offs.

Fourth, is fail fast and do quick iterations to evolve the idea. Cultivate design thinking and learn as you make a progress on the idea of innovation. Failing fast not only save from catastrophic end result with a bing-bang approach if the outcome is not positive but also promote a culture of incremental learning. Designing low-cost experiments to test options fast and evolve the core idea in pursuit of landing with a successful innovation.  The product design company IDEO is the best example of practicing this principle.

Lastly, don’t put all eggs in one basket. There is not sure shot approach to innovation. Properly weigh the chances, apply decision sciences leveraging statistical models to gauge the probabilities in the innovation continuum. One way to tackle is to spread budgets across multiple ideas and develop a knack of moving ahead with the idea of the highest chance to become a successful innovation.

Based on the above 5 core principles of practicing innovation as a discipline, offer the following framework for executing innovation projects,

  1. Practice innovation as a discipline with a phased investment following an iterative approach and learning from failing fast.
  2. What is important in the pursuit of disciplined innovation is transforming from a Knower to Learner mindset with an appetite for an incremental gain of insights or gain a better understanding of the context/situation. Alongside self-transformation to learner mindset, promoting the learner mindset in teams and organization-wide definitely improve the decision making across the board.
  3. Define an objective in an innovation effort is the first step in the process. Be divergent in gathering ideas, converging to find the core, defining the success criteria to maximize outcomes, and identifying the practical constraints will aide in achieving the real results.
  4. understand the importance of defining key assumptions. Develop an open mindset to trigger and invite ideas from broader teams, thinking from others point of view etc. in making the underlying assumption and success criteria robust.
  5. Master the development of a Learning and Action Plan. Pinning on the critical assumptions, dig deeper to identify and preempt risks and failures, and find ways to share risk and maximize business outcomes by building and complementing the right partner ecosystem are some of the techniques.
  6. Find ways to conduct low-cost experimentation is an art testing innovative ideas faster to hit the success at a reasonable cost
  7. Lastly, create an open-mindedness and developing habits in maximizing learning strategies for better outcomes.

In summary, build the traits of innovation leading from the front and nurturing innovation culture with values like making others successful, fostering meaningful conversations, learning from failures, embracing ambiguity, being optimistic, collaborating and more importantly taking ownership.