“come for the tool, stay for the network.”

A popular strategy for bootstrapping networks is what I like to call “come for the tool, stay for the network.”

The idea is to initially attract users with a single-player tool and then, over time, get them to participate in a network. The tool helps get to initial critical mass. The network creates the long term value for users, and defensibility for the company.

That’s Chris Dixon.

You can think of insurance companies as networks where the value is in the pool of other insureds that kicks in the law of large numbers. Insurers don’t start out this way of course, and they usually have to win business by ubderpricing it.

In normal insurance market conditions you can be pretty sure that if an insurer has found a way to win your business they will be losing money on it. Or at least they think they will. Eventually your price will go up to a level they can stomach and transaction costs (for you) keep you sitting tight.

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