Network Effects and the Popularity of Facebook
Is Facebook likely to become another Friendster in the future, still around but almost forgotten?
This New York Times article argues that Facebook will not. It claims that Facebook’s social network no longer resembles a “young, hip downtown nightclub scene—one day a site is hot, the next it’s not”, because Facebook was able to attract older users who “stay put”. With over half of the Facebook users in the U.S aged 35 or older, Facebook has built stability in its network.
Furthermore, Facebook has used network effects to keep its popularity. This article defines network effects as “the way the value of a product or service increases in tandem with the number of people who use it”. Users experience a direct network effect when each of their friends joins the network. However, the indirect network effects that come from the large numbers of “unknown other people in the Facebook world” may be the most powerful. The large masses of people on Facebook attracts complementary products and services. Thus, when Facebook opened up their site to outside developers, lots of software developers created apps for Facebook to access the large crowd of users. These vast amounts of apps then attracted more users, which attracted more developers, in which NYT calls a “virtuous cycle”.
Facebook’s U.S users on average spend “more than three times the average time spent on Google’s Web sites”. Google does not benefit significantly from network effects because its algorithms operate the same way if 1 person was using it or if billions of people were using it. Thus, as the NYT article says, “network effects, if powerful enough, can push a platform past the tipping point, accelerating its growth”.
I found this article very interesting because it points out the attracting specific crowds (in this case older users) can bring more stability. Also, I thought that Facebook opening its site to third party developers was a very strategic move because the indirect network effects attracted lots of app developers who developed great apps that attracted even more users, creating a “virtuous cycle”.
Link to article: http://www.nytimes.com/2010/03/07/business/07digi.html?_r=0