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Is Google Plus Doomed?

It seems that Google’s latest attempt at a social network – Google Plus – may soon find itself going the way of Google Wave. Seemingly, there is nothing wrong with the product. It has a unique and intuitive functionality, merges seamlessly into the millions of existing Google accounts, and has one the world’s most sophisticated infrastructures at its backbone. So why hasn’t it taken off like Facebook or Twitter?

Simple. The platform generated too much hype pre-launch, and is now finding itself on the wrong end of network effects. After going live, the site’s traffic immediately spiked, indicative of a highly interested and excited audience. Unfortunately, since then, usage has declined. Google simply hasn’t been doing anything with the site to keep people’s interest.

“The real test of Google’s social network is what people do after they join. As far as anyone can tell, they aren’t doing a whole lot. Traffic-analysis firms have consistently reported Google+’s traffic to be declining from its early peak. Even Google’s own executives seem to have gotten bored by the site.”

Like any club, a social network requires users to drive its success. The more people it attracts, the more people use it, the more people it attracts. It certainly hasn’t helped that Google turned away potential client bases by restricting users to legitimate accounts and preventing businesses from creating brand pages for themselves. By the time this decision was reversed, it was too late. The initial buzz was gone; many early adopters had already gone back to Facebook and Twitter.

The idea of network effects is simple. The success of a product is dependent upon the perceived usage of it by potential customers. When Google+ launched, the anticipation was huge – closed beta invites were even being sold for hundreds of dollars. Unfortunately, once the dust settled, people realized there wasn’t much to do. And that’s when usage started to decline.

People’s reservation prices – the amount of value they place on having something – is the product of their pure reservation price, r(x), and the anticipated usage, f(z), where x is an individual and z is the proportion of people actually using the product. The former varies independently amongst people, and in this case is the cost of their time. The latter is what drives network effects – the more people are anticipated to use a product, the greater its value. For Google+, f(z) started high, but has since been dropping as people realized how overexcited they had been.

Network Traffic

Network-traffic analysis confirms that site’s usage has been steadily declining, but recent data indicates that it has stabilized. In the context of network effects, this is indicative of a steady equilibrium. In other words, the public had overestimated how popular the site would be. Since then, the users with smaller reservation prices have been dropping away, causing z and f(z) to drop. Once the equilibrium quantity of users was reached, f(z) stabilized to reflect that. Conceptually, this translates to the remaining users having reservation prices that still equal or exceed the opportunity cost of their time, given the steadied user base.

Will Google Plus fail? It is difficult to say. With no changes by Google or its competitors, it will likely live on. Of course, that situation is unlikely to sustain itself. Should more people discontinue using the service, the client base will drop further, potentially beyond a critical point, shifting the equilibrium number of users to zero. No one will anticipate others using the service, and thus no one will want to use it.

Sources (displayed links are truncated; click to go to cited articles):

http://www.forbes.com/
http://www.slate.com/
http://insights.chitika.com/

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