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Attract and extract

Chris Dixon’s recent piece on why decentralization matters is currently making the rounds online. It clearly explains the first two eras of the internet and how the third era is developing as we speak. Cue decentralized cryptonetworks.

I particularly like how he describes the relationship that centralized platforms – like Facebook – have to their users and to their complements (other businesses, software developers, creators, and so on). 

Here are two graphs from his article:

In the early days it’s all about cooperation and doing everything you can to attract users. The platform gets more valuable the more users are on it and so the immediate goal is to build up the network effects and lock people in.

But as the platform grows, the relationship flips (top of the S-curve). In Dixon’s words, it becomes a zero-sum game whereby to continue growing the platform starts extracting data from its users and competing with its complements.

The promise of cryptonetworks is that they will do away with many of these negative externalities, but at the same time empower the kind of sophistication that we see today with centralized platforms.

The venture capitalists are circling because a fundamental shift in the architecture of the internet will mean disruption. I’m following it because I want to understand how it may apply to real estate and the built environment.

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