This is what a power law distribution looks like in the wild.
The shape is typical for the winner-take-most competitive landscapes of new digital network forms… the marketplaces, the exchanges, the messaging systems, the platforms… where every added node enhances the whole cluster, and the added links enhance the network’s value… which, when a tipping point is passed, can catapult the asset to a place of dominance.
Network effects though aren’t always obvious… and it may help to take the outcome, such as in the illustration, and work backwards from the general result, which is a clue.
The factors driving it, which may or may not be on the surface, could also determine risk… as network effects are sometimes also negative, with tipping points that sometimes happen in the opposite direction… and there may be references for comparison with other network structures, context, precedent, and understanding.
- Where there is digital disruption, there is product abundance.
- Where there are power law distributions, there is network scarcity.
As a rule, it’s better to invest in scarcity, best to avoid abundance. Because the two are relative, it’s critical to know which is which, and why.