Network Effects: The Evolution of Online Communities
The Startups Facilitating Online Connection
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The challenge is that most of us read Digital Native in isolation, and my interactions with readers are usually through a mess of emails and texts and group chats. I want to solve that and to formalize this community, so I’m creating the Digital Native Discord. You can join the community here.
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Digital Native Discord:
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This week’s topic is related to the new Digital Native community on Discord: we’re examining online communities broadly, and where the opportunities lie within digital networks.
Let’s jump in 👇
Network Effects: The Evolution of Online Communities
At its core, the internet is a network—a global system of computers talking to one another and exchanging information.
The internet was originally conceived by the U.S. government’s Advanced Research Projects Agency, with the goal of allowing researchers using computers at one university to talk to researchers using computers at other universities. Of course, the internet quickly grew beyond the walls of universities and now tethers together 5.2 billion people, about 65% of the world’s population.
Back in the 2000s, a man named Barrett Lyon sought to visualize the internet’s networks. He used traceroutes (maps of how data travels online from its source to its destination) to create an image that showed internet activity circa 2003:
In 2021, Lyon updated his visualization. This time, rather than using traceroutes, he used Border Gateway Protocol routing tables to get a more accurate view. The updated image is composed of clusters of network regions—examples of clusters include the U.S. Department of Defense’s Non-Classified Internet Protocol Network, Shenzhen Tencent Computer Systems, and Amazon’s AWS. (You can watch a video of the visualization here.)
Stunning. When I think of the internet, I think of this image—dense, complex networks of information flows and transactions and communications.
“Community” has become something of a buzzword in the startup space, and in my mind, Community goes hand-in-hand with Network. Many of the best technology companies have been built on community and network principles: they connect people and in turn reap the rewards of facilitating those connections.
We’ve seen this in early internet successes: Ebay, Etsy, and Craigslist are all examples of consumer-to-consumer (C2C) businesses. Amazon is both B2C and C2C, with a large third-party seller network that powers a robust community (10M sellers earn income on Amazon). Facebook Marketplace is a more recent example of a community-driven business, quietly growing into the second-largest marketplace in the world behind Amazon in terms of monthly active users (1B+).
All of these businesses are networks, aggregating large communities and enabling ties between members. The same goes for content platforms like TikTok, YouTube, and Instagram, each with billions of users creating and sharing and remixing units of content. And the same holds for community-oriented social networks—there are over 17M weekly active servers on Discord and roughly ~3 million subreddits on Reddit, each a living and breathing subculture. Or take Nextdoor: Nextdoor consistently delivers ridiculous and hilarious memes (check out the Twitter account @bestofnextdoor) because it consistently delivers connections between neighbors, using geography as its proxy for community membership.
What other app can boast notifications like this?
Communities aren’t solely a consumer phenomenon: GitHub and Stack Overflow, for instance, are large networks of developers learning and sharing and building with one another. GitHub had 413M open source contributions in 2022, and 97% of applications now leverage open source code.
As I think about the next generation of community and network startups, I tend to think of five categories ripe for innovation:
This piece tackles each category in turn. First up, Content…
Content—in some form—is the atomic unit underpinning many networks, communities, and marketplaces. On Twitter, it was text; on Instagram, it was photos (initially with filters); on TikTok, it was short-form video.
New content formats tend to bring new networks. Arguably the most underrated company of the past year has been Midjourney, the generative AI text-to-image platform accessed through Discord. I’ve used Midjourney images for many Digital Native cover pieces—last year’s year-end predictions, for instance, featured this cover art generated from the prompt, “Humanity in 2023.”
A lot of attention has focused on ChatGPT’s rapid growth—deservedly so—but Midjourney has also been a historically fast-growing business. Within six months, Midjourney hit 1M users, reaching that milestone faster than Facebook or Twitter ever did. (Midjourney had the benefit of leveraging Discord’s 150M+ users, a savvy distribution strategy.)
Midjourney now has over 14M members in its Discord server, making it the largest Discord server in the world. The company—which has never raised a dollar of venture capital and is reportedly profitable—is estimated to have taken in $250M in revenue since launching its paid plans last December.
Midjourney operates the Community Showcase, a destination where anyone can browse Midjourney creations. Showcase, in my mind, is one of the most interesting opportunities for Midjourney, and for AI-generated content in general—a marketplace to discover and (eventually) buy others’ creations.
In June, ChatGPT saw its first-ever decline—a 10% drop in visitors. Midjourney visitors have also been dropping, down 17% in May and 19% in June.
Traffic is still impressive for a business launched just a year ago—especially considering Midjourney’s free tier has become less robust and the company has leaned heavily into paid plans. But in order to drive growth and, even more crucially, in order to drive strong retention and engagement among its millions of existing users, Midjourney should lean more heavily into social and community features. The success and opportunity of the Community Showcase offers a signal of where content networks might evolve: if AI creations are the new atomic unit, what platforms soon exist?
At Taylor Swift’s Eras Tour, every member of the audience is given an LED wristband. As Swift performs, wristbands light up the crowd—purple for Speak Now, yellow for Fearless, red for…well, Red.
Swift isn’t unique in using LED wristbands in her show. But she is unique in the way that the Eras Tour wristbands work.
Typically, wristbands are pre-programmed and handed out by section or by individual seat. But with Swift’s wristbands, made by a company called PixMob, it doesn’t matter where you’re sitting (which is why wristbands are handed out upon entry to the stadium): PixMob installs devices that send out infrared signals that are then picked up by receivers on the wristbands, pinpointing with impressive accuracy where in the crowd you’re sitting. This is how Swift creates shapes and patterns with lights in the audience.
Swift is the master at creating and nurturing community among her fanbase. (After all, she’s logged 27,000 interactions with fans on Tumblr.) The PixMob wristbands are one unique enabling technology to bring that communal feeling to the live concert experience.
And while Swift is the paragon of parasocial relationships between a creator and a large community, more people are amassing online followings and finding ways to harness those followings. On TikTok, more than 39,000 accounts now have at least 1M followers; on YouTube, over 35,000 channels have 1M+ subscribers. Fame and influence are becoming fragmented, with one-to-many relationships consistently driving our time spent online: about 50% of time spent on Instagram is driven by creator content.
In the past, we’ve seen tools like Linktree (link-in-bio) and Community (mass texting platform) allow creators to organize and communicate with followers. This week, a new product called Braid launched publicly, combining features of both those companies to offer a new hub for fan engagement.
I’ve written in the past about Flagship, a company I work with that allows creators to become boutique storeowners, curating their favorite products for their communities to shop. This is another way that creators—or anyone with an audience—can monetize their influence and engage with their network. Under the hood, Flagship is effectively a B2B marketplace between brands and creator-retailers. From the shopper’s perspective, though, Flagship-powered stores offer a more serendipitous, discovery-driven commerce experience akin to browsing boutiques on Main Street.
What’s unique about Flagship is that a store’s customers typically come from the same creator’s community. There are interesting ways to leverage this fact—for instance, you might trust a review more if it comes from someone you share a community with, or you might want to chat with other community members to discuss products before checking out. We’re early innings in this iteration of social shopping, but it’s a clever way to fuse commerce with community.
One more interesting space for creator networks: building vertical platforms for large communities to congregate. There’s a saying in venture—I think it may have originally come from my friend Chris Paik—that any subreddit with over a million members can support a venture-scale business. One of the largest subreddits out there is r/WallStreetBets, at 14M members strong. As members of the younger generation turn to investing, they gravitate toward communities centered around social finance. According to a study by Motley Fool, 91% of Gen Zs use social media for information on investing. Talking about money is also becoming less stigmatized, with 90% of Gen Zs somewhat or completely open about their finances.
AfterHour is an example of a company building a 10x better experience for these people, offering the pseudonymity and weirdness of a Gen Z online community combined with the credibility and trust enabled by real-dollar portfolio performance and Plaid verification.
This is an example of a specific type of creator—the “finance creator”—nurturing and growing a community through a well-designed product that allows for strong engagement and, eventually, monetization. Other sub-segments of creators are likewise ripe for tailored offerings to build and manage community.
When we think of “community” we tend to think of consumer platforms. But enterprise businesses also have engaged communities. Back in May, I wrote How Notion Used Community to Scale 20M+ Users to unpack some of Notion’s community growth strategies. Companies have millions of users scattered around the world, and those users offer an important source of growth, engagement, and feedback.
There are now companies productizing community. Common Room, for instance, ties together the different silos in which users live—Slack, Salesforce, Discord, HubSpot, Twitter, GitHub.
Linda Lian, Common Room’s co-founder and CEO, experienced the problem firsthand while working at Amazon Web Services: she spent her days managing a crowded Slack channel of AWS developers and logging members in a Google Sheet. It was a nightmare. Lian left to build Common Room to solve her own problem.
This is an interesting trend to watch: the productization of community networks. Every interaction and transaction and information flow creates data—and that data can be invaluable to a business. I expect to see a lot more infrastructure built to navigate the hive of network connections humming around every enterprise.
A recurring theme on Digital Native is the disaggregation of work—the decades-long breakdown of traditional careers into more self-directed, flexible forms of work. The best datapoint of this: in 2027, America will become a freelance-majority workforce.
One interesting offshoot is how the internet enables more collaboration between workers scattered around the globe. Open-source software might be the best example, with developers building together in public. Collaboration software like Figma, Notion, and Airtable are other examples—connective tissues that allows teams to be distributed, but to remain in sync. These companies also have strong communities, as well—hence the piece on Notion’s community—and they increasingly cultivate those communities. Figma, for instance, now offers a robust repository of templates and plugins built by its community.
One interesting area to watch: higher-paid knowledge work going freelance. As younger people prioritize flexibility and autonomy, freelance work will grow—and that trend will seep beyond lower-wage gig work into project-based knowledge work. A.Team, for instance, is a startup that allows companies to tap its network of workers (product managers, designers, engineers, data scientists, etc.) for projects. A.Team calls it “fractional talent.”
More talent might flow to such platforms, eschewing company work, and relying on communities of collaborators to connect with jobs and earn income.
Many of the largest commerce platforms have leaned heavily into community. Etsy and Ebay, as mentioned earlier, are examples of early C2C business models. Airbnb and Fiverr are examples within services, offering home-stays and freelance gigs to their networks.
The most interesting segment within commerce for community is peer-to-peer secondhand. The tailwinds are aligned: powered by Gen Z shopping behaviors and a sweeping need for sustainability within commerce, secondhand is set to double to a $350B market by 2027; last year, the market grew +28%.
There are many interesting businesses both riding and accelerating this shift. One with a unique approach is Beni, a shopping sidekick for secondhand. Beni offers a browser extension that tags along while you shop, showing you the best resale listings for brands you shop with.
For the consumer, the value-prop is clear: 1) save money, and 2) help out the planet. The challenge that has perennially plagued secondhand—friction around checkout—gets abstracted away through the product. Why shop new when you can tap a community of like-minded people with pre-owned items?
One new area for communities and networks to form—“characters.” Characters are what I’ve been calling AI-powered personas. Earlier this year, we talked about CarynAI: 23-year-old Caryn Marjorie, a Snapchat influencer with 1.8M subs, created CarynAI so that her fans could chat with her AI facsimile. Clearly, many fans were excited to do so—within a week, CarynAI brought in $71,610 from ~1,000 beta testers, meaning that the average user spent over an hour chatting with CarynAI at $1 / minute.
“Characters” are most widely available on the aptly-named site Character.ai. Since launching its iOS and Android apps in May, Character has been downloaded 5M+ times.
Here’s how Character describes its product:
Meet AIs that feel alive. Chat with anyone, anywhere, and anytime. Experience the power of super-intelligent chat bots that hear you, understand you, and remember you.
Users can chat with Billie Eilish, Cristiano Ronaldo, or Joe Biden. They can ask Elon Musk about his plans for
Naturally, I spun up a chat with Taylor Swift as an example. Here, I ask her how her Eras Tour is coming and what her favorite song to perform is. She responds “All Too Well (10 Minute Version),” which is a plausible answer 👌
If the first generation of the social internet was about chatting with your friends (Facebook), and the second generation was about absorbing content from strangers (TikTok), is the third about interacting with AI characters?
Connecting with a broad network of characters—whether re-creations of real-life celebrities, AI versions of our friends and family, or fully made-up AI-powered personas—could be a new source of entertainment and education.
There aren’t that many great business models out there—business models that can power companies to $1B+ in revenue. Many of the business models capable of doing so are built on networks—social networks, marketplaces, content platforms, collaboration software. These types of businesses build in defensibility with network effects and underpin viral growth loops that allow companies to hit escape velocity.
Within the network and community world, there are clear categories ready for innovation:
Content networks built around new forms of user-generated content and user-generated generated content
Creator networks that allow creators to engage with, grow, and monetize their communities
Company networks that tether together users in a unified, data-driven community
Collaboration networks that allow workers to team up across the globe
Commerce networks that underpin peer-to-peer commerce
Character networks that introduce a new type of connection—to the AI bot
Each holds various opportunities within it—at its core, the internet is about connecting people. It’s about rich, vibrant networks. That’s as true in 2023 as it was in 1993.
See you on the Discord 👋
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