The Power of Defaults

Decentralized protocols would make very interesting base layers and I’m particularly excited about web3 in the context of identity. Does crypto solve the problem of suboptimal defaults? Well, that’s a different question and I’m honestly not sure. Just because you have decentralized base layers doesn’t mean you won’t see centralization, aggregation ... See more

In contrast to Google and Apple, Facebook doesn’t own an operating system and, thus, doesn’t enjoy the defensibility of a pre-installed default. But because Facebook is the de-facto online identity layer for so many people, it is almost guaranteed to secure some of that limited pixel real estate on the user’s home screen.

Take social networks, for example. Friendster‘s network effects weren’t strong enough to fend off MySpace. And MySpace – which many feared would dominate the internet forever – was quickly replaced by Facebook.

Unsurprisingly, in their attempts to become defaults, other companies have tried to create their own identity base layers. One of them is Facebook.

I’m not arguing that Facebook and Google aren’t extremely powerful companies. They clearly are. But I’m not convinced that their power is really based on network effects. Network effects might have helped them to get to where they are today, but their defensibility lies somewhere else.

The beautiful thing about defaults is that they beat almost any competing product – even if that competitor has strong network effects or is technically superior.

Thanks to this powerful data network effect, Google was able to move down the stack. Google wasn’t “just a website” anymore, it became an aggregator that commoditized all other websites and made them layers on top of Google’s.

If Google wants to become a default on the layer below the search engine, it must find and occupy limited real estate on the browser layer. There are billions of websites out there … but only one default: Your browser homepage.

This essay isn’t about network effects per se. It’s about the end state that they can enable: Defaults.

Because of their marginal costs, atom-based businesses have a greater lock-in effect and thus defensibility.