Here are two comments that I wrote soon after attending the Fred Wilson talk on network enterprises. These explain the commonality between data network effects and the recurring theme on this blog of intermediating talent through networks rather than enterprises:
Like the original post, this talk was EPIC. Not only learned a lot, but left me with a lot to chew on.
What I took away is that the key to network efforts is getting users to contribute “data” to the network to create something better for the user that is also defensible for the platform owner.
In consumer, it was about getting users to share “data” that they didn’t know they wanted to share. Facebook (posts, photos, etc.); 4Sq (location); Twitter (micro-thoughts).
In enterprise, it is complicated by the dominant default assumption, that “data” should stay within the four walls of the enterprise.
Finding ways to overcome that can yield so much market surplus, because it is in many ways, such a self-evidently wrong assumption.
I have been thinking about it as the converse of Coase — while the creation of the firm solved inefficiencies associated with transaction costs, it created inefficiencies related to “data” flow across enterprises. Networks in enterprise are the way to correct some of those inefficiencies.
But in reaction to your talk, one thought that I had was that the notion of data network effects is the other side of Coase’s Theory of the Firm.
An overlooked potential corollary of his theory that a firm-based economy is a response to contractual transaction costs is that there is also an overlooked cost to efficiency in predicating an economy on the firm. A firm’s first instinct is to keep things within its four walls, so knowledge flow is inhibited across the economy.
By finding ways to devolve enterprises into networks as an extreme case or force enterprises onto networks as the more common case, you fight that deadweight loss in our economy by transferring knowledge across firms across the economy. Sort of like the pre-calc teachers finally sharing lesson plans with each other via edmodo or patients potentially sharing data among themselves bypassing drug companies and governments. In the non-network world, this is what a lot of professional firms like McKinsey do — take knowledge and spread it around.
So perhaps, part of the network effects thesis in enterprise is freeing knowledge by using networks to group people in ways that are in addition to or in replacement of the firm.