Chris Dixon on How to Build Networks, Movements, and AI-Native Products

0:00Whether you're an investor or entrepreneur, the most important thing to start with is to look for these forces, to look for these exponential forces. You can do all sorts of tactical products things, everything else, but these forces are going to overwhelm you for better or worse. How intentional do you think you have to be as a founder about building a tool? Do you have to be thinking about the network, a priority, or can the network sort of emerge? Because in AI so far we've seen a lot of tools and not a lot of networks, what's your instinct? Why does some consumer products suddenly explode into networks that reshape the internet while others fade away?

0:35Today on the podcast, A16Z general partners in Nisha Charya and Chris Dixon take on that question. Nisha invests in AI native consumer products in the next wave of consumer tech. Chris is best known for his work in Web 3 and Network Economies, and he's also led some of A16Z's biggest consumer bets. They cover the history and power of consumer networks, the forces that shape how they grow, And what all this means for founders building in the age of AI. Let's get it to it. Welcome to the A16Z consumer pod. I'm super excited and honored to have my partner in critics in here today. You know, Chris, you're probably best known for your work in Web 3 and Network Economies recently.

1:12But what folks may not know is that you'd like a lot of the most important consumer investments at in recent Horowitz and prior. You also founded two consumer companies. I thought a fun place to start would be networks that feels like the first place you really cut your teeth. So maybe talk about your investments in Stack Overflow, Pinterest, Instagram, and how you generally think about consumer networks. So many of the most important internet services are networks. Going back to the early internet email and the World Wide Web, which are still, of course, around and really important are networks.

1:41The networks in the sense that the service gets more valuable as more people use the network. If you were the only one on email, it wouldn't be particularly valuable. During the rise of the internet in the 90s and 2000s, that's when you had things like YouTube and Facebook and later on Instagram and a whole bunch of other really important networks. If you're an entrepreneur or an investor during that period, they tend to be very valuable companies. They're very hard to build and we can talk about that later. There's different tactics and strategies for doing that. Yes, my background, I started two companies, the first is a consumer security company and the second was a consumer AI company and then was a personal investor.

2:16I co -founded a seed fund, I'll found a collective, which is an investor in things like Uber and Venmo and Stack Overflows you mentioned, and just sort of revolve in a bunch of these networks as the internet involved. I think to really talk about networks though, it's important to kind of step back. And the way I think about the kind of fundamental, to me, a foundational question and attack, is why in tech do you have these companies come out of nowhere and end up being very impactful, having hundreds of millions of billions of users being very valuable in a way that you typically don't see that in other industries, right?

2:47What's fundamentally different about tech? And I think the answer is that in tech you have some very strong kind of exponential super linear forces. So the most famous example of that is Moore's Law. Alright, so Moore's Law is the idea that sort of every roughly two years or 18 months, the performance of semiconductors doubles. It's a rough approximation, but it's basically been true. It's in its compounding improvement in processor performance. I think there's also kind of a broader Moore's Law, which is storage, networking, like all the kind of computing research which just gotten much better, which is why you have things like mobile phones, right?

3:20So if you go back and look, pre -i -phone mobile phones were pretty junky and limited in capability and didn't have touch screens and head core performance. And what Steve Jobs and Apple's great insight was was that actually by the way, the first iPhone also, I think it was one of the people that bought in the first state, it also was quite limited. But part of their brilliance was they saw this curve, right? They saw this exponential curve and they wrote that curve. So Moore's Law is a very important exponential curve. But the other kind of, I'd say there's two other really important exponential curves in software.

3:48One is what I call Composibility. Composibility is really to think what's accounted for the rise of open source software. You know, why did Linux go from a hobby project in the 90s to the dominant operating system in the world today? The answer, a lot of it is Composibility. Composibility means the software's open source. Anyone can contribute to it. And you can very importantly sort of harness is the collective intelligence of the internet as opposed to locking up, you know, only relying on your employees, right? Anyone in the world can, you know, as the famous phrase, all bugs of shallow within a five balls.

4:20And really importantly, with open source software becomes like Lego bricks where anyone can take a piece and reuse it. And so you get this kind of compounding exponential kind of improvement growth. And then the third really important exponential force in tech is network effects, as we were talking about, which is why networks are so important, right? So they started off often quite limited. Facebook was just at Harvard and there was essentially a real time kind of a yearbook or whatever for students at one school. And of course, you know, and kind of hopped by Lilly Pads to other schools and high schools and eventually to a kind of global domination that we have today.

4:54And so they saw Mark Zuckerberg and the team saw this power of network effects and kind of rode those network effects. And so that's kind of why, and Clay Christians and calls this disruptive technologies. It's just kind of puzzle in a way of why intact you have these very strong incumbents who seem to miss, you know, I think you could say, tell the story today about maybe Intel and Nvidia or something like Intel. Or even chat GPT and Google. You know, it's just reading, that's a very example. Yes, is it neural networks? 10 years ago, we're kind of choice, right? Yes. And I mean, they were cool.

5:24And I think a bunch of people saw the potential of them. But the reality is they just didn't work that well, right? I remember there was a chatbot kind of VC thing and I want to say like 2016 or something, I don't remember that. You're not even. That's a chat box. A chat box had a moment back then. Yeah, they had a moment. But the reality is that just they weren't that good, right? Yeah. They just couldn't do the job. But of course, they got much better in the genius of OpenAI and other pioneers in the space was to make that bet, right? That's right. And then Google today is in kind of an awkward position, right?

5:54Because they have this huge incumbent business that depends on the sponsored links and they're trying to layer an AI and things like that. but in some ways it didn't come out of nowhere, but it grew I think faster than even some of the optimists predicted, improved faster. And so the big takeaway here is I think whether you're an investor or entrepreneur, the most important thing to start with is to look for these forces, to look for these exponential forces. And one of the lessons I learned in my career was you can do all sorts of tactical products things, everything else, but these forces are going to overwhelm you for better worse.

6:30and that the first thing to understand is that kind of landscape of these forces and how they're moving and how you can hopefully be on the right side of them. Chris, how intentional do you think you have to be as a founder about building, like you're building a tool, do you have to be sort of thinking about the network, a priority, or can the network sort of emerge? Because in AI so far, we've seen a lot of tools and not a lot of networks. And then of course in hindsight, everybody was designing a network from day zero, what's your instinct? That's a great question. So like I wrote a blog post years ago called come for the toolstay for the network.

6:59And the idea was what I observed is sort of a tactical pattern among entrepreneurs. I said it Instagram as an example. So young people remember this. But Instagram actually kind of initially its network, Instagram's network was not a big part of the product. They'd had a button where you could share an Instagram. But why would you do that because it was on it? And so what you would do is I think two things. One is they had these cool filters, which at the time you had to pay for and other services and they gave them way for free. So it kind of just affects or lenses or whatever you want to call them.

7:26And then secondly, they piggybacked off other networks so you'd share to Twitter. And then I think a year or two later, Twitter blocked them and there's a whole kind of thing. You see that today, maybe with Substack, Substack starts off, right? Piggy backing on the email network on Twitter. I'm not, then a firms investor, I'm not personally involved. My sense is they're now getting traction with their own network. You go to the Substack app, right? And so I think it's kind of a similar tactic. I think you can see some of this kind of come for the toolstay for the network and I'll defer to you on this because I'm not as up to date, but like modern productivity tools.

7:57Maybe like Figma and Notion, things like this, where they're useful single player, right? You can just go to Notion and it's a really nice way to edit the document or Figma to kind of do design. But also there are social features that I think become essential. These things are all degrees, right? Google docs. I love Google docs. I use it. I use the social features. The reality is, is it really a network? Like I could probably switch and then just share links with somebody else. But the social features layer on, some products like Instagram, it becomes essential, right? Like it's just, you simply can't leave Instagram if you have a following and you want to keep that following.

8:30So it kind of varies by use case. But by the way, I think you see some of this now in Stripe doing the link product, which is a payment app. I think Shopify and the shop product, right? I think there's a really nice user experiences, you know, not the type in my credit card again. Now there's kind of a network, right? Shopify originally was just kind of a tool for... That's right. Sellers online. ...brother merchant to get online. That's right. So I think it's a really powerful tactic, right? Because network effects cut both ways, because network effects are great when you have them, but they're really hard at the beginning.

8:55No one wants to be on a dating side with two people, right? I mean, there's something, right? And so like, how do you make these things useful from day one? But then the problem with single player, right, is it's just hard to defend them, right? I think you're seeing this in AI now today, you know much better, but you're seeing a lot of like really cool tools because it's an amazing technology. But then it's like, okay, you can change your face app or whatever, but then how does it sort of move beyond fattishness, right? how does it move to something that really engages people over a long period of time?

9:22And often the answer and consumer products is networks. And so then, you have to layer in the network. The challenges, of course, you don't want to just layer it in for the sake of it. You need to actually be useful. So, yeah, I'd love to hear from you. What are you seeing in that area? Yeah, you know, well, it's actually interesting because it feels like the big networks have become hyper sensitized to this idea of new networks emerging that were bootstrapped on their networks. So I think Twitter, if 10 years ago, would have, you know, been a lot more asleep at the wheel to the threat of a sub -stack.

9:48And they were pretty aware of this potentially happening, of course, Facebook has deep platformed a ton of companies that they thought were going to do this and Insta and others. So one, I think the networks are more sensitive. And then on the tool side, actually, because the tools have been specializing in their own directions, and part of it is sort of product features, but part of it, even for some of the multimodal tools, is aesthetics. Mid -journey just has a different aesthetic than ideograms, so they can both coexist and they're not directly competing. So even though the tools are seemingly substitutes, so far we haven't seen that trade -off and they're all working, maybe that's just where we are in the product cycle.

10:22But I do think it's sort of a topic for a lot of AI founders, which is there's not an obvious network to build around a lot of these tools and how much of that should be sort of pre -designed versus let's just keep pushing the edge and the network will emerge. And also the it will show up in two ways, right? Like one would be in the usage like you'd buy some of these tools and not get used in much. But the other is in price, right? Even if you carve out a niche, how much more are people willing to pay for that niche versus those competitors, right? So yeah. And actually prices have been going up, interestingly.

10:54Like Google's top skew is 250 a month, the Grox is 300 a month. I don't think we've ever seen a time where consumers were paying those kinds of prices. I mean, one of our sort of extreme views here is that the future of consumer disposable income will be like food rent software. and then software is going to subsume a lot of the other areas of discretionary spend today. So it's also possible, I've always suspected in tech in Silicon Valley, kind of we underestimate the power of just kind of brands and consumer inertia. And I think you're sort of seeing that today with chat GPT of just like such a household name like overnight almost that even though it doesn't have in this sort of technical sense, maybe network effects, I mean, memory and things, but I mean, it's not that's more stickiness network effects, but just the brand effects are so powerful, and you become kind of known and the cursor is known as the best five coding platform or whatever.

11:43That's right. Yeah, she was gonna ask you about the crystal. Of course, network effect is a gold standard for defensibility. You know, you've maybe talked a little bit about how brand is underappreciated. You just mentioned it. Do you think being a high NPS, DAU product is that enough of a moat? Or do you think that like we really have to push for building around these compounding forces? Yeah, that's a really interesting question. I mean, one argument would be the internet. I think there's a decent argument. I mean, there was actually having this argument at one of our partner off sites. I'm not argument, but discussion.

12:12Is it maybe a lot of the network effect has been externalized to the internet, right? And so the idea being, you know, your cursor and then suddenly, you know, it becomes popular or mid -journey, let's say, right? And then you get all these mid -journey influencers, YouTube videos, websites, how -to guides. And so you still in some sense have a network effect, but it's just not a network effect that's in the product itself. it's sort of externalized to the internet, right? And maybe that's a difference now. Like the year I'm discussing, was the era when the internet was being built? And some ways the internet is built now.

12:45I mean, I'm sure it'll hopefully improve and change, but it's built, right? I mean, it's built and it's five billion users and maybe the rules are different now. And maybe now that effect of getting sort of all of those different, the adjacent networks around you gives you an a sense of network effect. You try to show up top and search, which JetGPT recommends you, you know, the algorithms feature you. Like, you know, and then of course there's a soft sense of like a brand people've heard of you, but it's also this whole giant kind of system, right, with all of these different interconnecting networks might strongly favor those products.

13:19And then it becomes sort of a timing thing, right? You're getting early, the timing seems quite important, like getting in being the first to kind of own the, own the meme, the category and get that effect going. and then maintaining it through product velocity and high quality and everything else, which is non -trivial is very hard to do. I think particularly in AI you tell me, but you always stand the cutting edge. It's expensive. It's a lot of capital. That's another thing, by the way, the capital effects in AI. You do well, you raise the most money. I assume the people raising a billion have already proven a bunch of things, and at some point the capital becomes a moat, right?

13:54100%. Yeah, no, it's very interesting because there's this barbellying that's happening even in software where the bigs are getting bigger, but we're also seeing the sort of like single -person 100 million run rate company is coming, or maybe it's already here. Certainly the bigs are getting bigger and capital is a part of that. Maybe the market is just so big that the answer is both all the above. It may just mean that as you said, it becomes like food and rent and it just software is moving beyond kind of the quote -unquote software budget. It really hasn't been zero some so far. It's been shocking like prices are going up and everything feels like it's working.

14:26So So maybe we'll look back and say that was a sign, but so far so good. Chris, I thought actually since you mentioned vibe coding, it would be fun to talk about movements. It feels like you've been early to a bunch of movements, products like Coinbase of course, and MakerBot. Those felt like niche communities on the internet when you started paying attention to them. How do you think about investing in movements and how do you think about building around them when there's sort of questions around, is this a toy, is this something sort of structural, is it durable, ephemeral? Maybe talk a bit about that.

14:55Yeah, I mean, it's a little bit to the point we're talking about the networks becoming externalized. I used to spend a lot of time, I don't know, 10 to 15 years ago, just like on subreddit's and kind of niche communities, partly because I'm interested in stuff and partly, because I think they're very powerful, right? If you look at Wikipedia, Stack Overflow, like a lot of these kind of interesting kind of movements, like community sites, they're, they're often like 20 ,000 people, like they aren't that many, they aren't the millions that you might think. There's millions maybe doing a little bit here and there.

15:24But I just think a lot of, you know, if you look at open source software and crypto projects, like just a lot of things that that that have been kind of, you know, popular movements that grew were really led by a relatively small, I mean, I'm saying on the internet scale, relatively small, sort of hardcore enthusiasts who are really smart, often technical. And so, you know, and it's sort of the famous old quote, William Williams, Gibson, that the future's already here, it's just not evenly distributed. I've always believed that. I think if you just go back historically, that's the case that we're talking about neural networks.

15:59That's been going on since 1943 or something. There's been communities of people including the people out of the people that lead the labs today who 15 years ago were seen as niche or more niche or something. neural networks weren't the dominant approach. With that thesis, you want to find the next thing, the next big thing, like one way to do it is to look around and see where these kind of, you know, I would just describe it as hyper enthusiastic, sometimes cultish, you know, they have their own language, their own norms, you know, kind of a sense of insider outsiders. And so I got into that kind of a while ago, and that's how I got into originally like into Bitcoin, you know, as I just followed those people.

16:43And I found it was one of those things where it sounded kind of silly at first, and then as you learn more about it seemed a lot more interesting. That's always an interesting feature. There's some things you learn more about, and they aren't that interesting. Some things, they are kind of silly. The conspiracy theories that the Earth is flat or something, I've been one day hour looking at that stuff and it's crazy or something, or the landing conspiracy or whatever. Whereas you dig into this stuff and you don't have to agree with everything, but there's smart people and it's very interesting.

17:15So for me, it was 3D printing, this led to my investment in Oculus and Coinbase, really, we're both from that thesis, sort of VR, seeing the developers and the kind of kickstarter community enthusiasm around. We know that Palmer Lucky was first creating that. It also, I've got into new tropics and led to investment and things like Soyulenton got into back then, and it was like, this is like when I joined it from 2013, like drones, we did a few investments around that. And just sort of looking at these interesting kind of hobby communities. And the hobby communities, I mean, there's a bunch of reasons why I think it's interesting way to look at it is, one of those are the people that create these things.

17:58I mean, if you have 20 ,000 part, you know, interesting technologists, they often build things, right? And so they're going to build some interesting products. It's also like a great kind of marketing engine, right? They're out there, they often have sort of outsized influence on the internet, they have followings. You know, they they help kind of get the energy and energy going and and Build things and kind of market them It's not like it's not foolproof and you have it's hard, you know, because a lot of these things just end up kind of being niche or don't have I think it's going back to the exponential forces like you take new tropics like that's still a thing that's around But I don't think it's you know, it hasn't created a big tech company as far as I know But I think it's partly because it's just got linear forces not a exponential force behind it There's only, there's not some engine exponentially driving it to have better, better products.

18:46Maybe actually though, if you look at a company like Function Health, you know, Function Health is sort of the catalyst for this huge movement, consumer movement around health and quantified self and new tropics was a bit of the predecessor to that. So in a sense, there is this sort of slow exponential maybe and then very rapid uptake. And I think timing is a really interesting question here because when these movements, You don't know if they're going to play out over 100 years or 100 days sometimes. That's it. Yeah. So I don't know that you know much more about, I know, I've no, a little bit of function health, but that's interesting.

19:17Yeah. And you're right. Like it could just be that like 3D printing is a good example where, you know, it's still around. It didn't kind of get as big as people at HOPE. You know, I had an investment in MakerBot back and back then, which was kind of a leader and got acquired. And, you know, it's still a hobbyist thing. It's interesting. I think the limiting thing is it's in the physical world or isn't kind of a Moore's Law driving it. That said, I expected over 50 years or something, it will become a more important thing. Right, it could just be a timing thing. Yeah. The vibe couldn't think to come back to that.

19:51That feels like this sort of irreversible consumer phenomenon where everybody is maybe not quite programming, but creating software in a way that they weren't 10 years ago. How do you think of that as a sort of decentralizing force? You've talked about the economics of software versus the means of production. The means of production are sort of getting decentralized through these new tools like Repplet and others cursor. Is that sufficient to lead to a renaissance in the open web? Or what do you think are the second order implications of everybody programming? Yeah, it's a great question. I mean, the thing with the internet and the consolidation, I mean, the internet has become increasingly consolidated.

20:27You can just look at But I wrote a book about blockchains, and this was a core theme in the beginning of the book, was talking about what happened in the internet getting consolidated. It's just if you look at metrics like the amount of money revenue generated, the traffic, It's more and more, it's like 95 % plus of that, both of those metrics are now in five to ten companies' hands. You can make an argument either way, like with AI, but they already seeing this in the data, a lot of AI obvates the need to click through and go to a website. And so, and I think we just saw, I think we just report out that like a bunch of like travel sites and others were kind of seeing some alarming drops in SEO, which I think is kind of inevitable if, you know, like, I mean, it's a mixed thing.

21:19I got on the one hand as I'm a user of chat GPT and it's amazing to just get an answer, right? And I have to go and like searching again after you know and go through all these websites and look and it's sort of this vicious cycle thing where like the websites lose traffic and they get more desperate and then they put a pop -up ads and other things and so it becomes even a worse experiment. It's been going on for like 10 years is this kind of kind of negative flywheel I think that's been going on. So look on the one hand it's great for consumers you get an ant I mean vibe coding and a lot of you know we were investors and stack overflow which you know got acquired but I think their traffic has dropped a a lot because of vibe coding.

21:55And it's this thing where vibe coding, I think probably some of the train data came from Stack Overflow and GitHub at places, but then it becomes better. And like, look, I use cursor to do some fun projects. It's an unbelievable tool. I think it's clearly good for the world.