Facebook vs. LinkedIn: A Case of Network Effects
Article: http://www.dailyfinance.com/2014/11/17/facebook-takes-on-linkedin-professional-network/
This article highlights Facebook’s recently announced plans to offer a new work-oriented offering to rival the likes of LinkedIn, Microsoft, Google and Salesforce.com. The new service will look similar to the consumer version of Facebook, except users can keep their personal posting, pictures and identity separate from the professional and work content. The new service would include online chatting with colleagues and the ability to “connect with professional contacts”. This could prove an especially serious challenge to LinkedIn, which has successfully established itself as the leading business-oriented social network.
This new service provided by Facebook will have an important competitive advantage in the form of very powerful network effects. Facebook has “1.35 billion users who are active monthly” and “864 million who use it daily”. In contrast, LinkedIn claims 332 million registered users in total, but “only 90 million visited from July through September”. Thus, Facebook generates much more network effects than LinkedIn, its value is much higher in the eyes of consumers and businesses alike because it has much more users than LinkedIn. In any given workplace, there will be a larger portion of employees using Facebook than LinkedIn, and this will be a major consideration for companies when they think about using Facebook’s new work-oriented service. In essence, a large part of Facebook’s value comes from the availability of other people you might want to interact with.
Yet, the article points out that Facebook has significant drawbacks. Many companies have banned employees from using the service at work because of “fears that significant use can mean lost productivity”. In addition, there are major privacy concerns that have companies worrying that information leaked through employees could potentially land in the hands of competitors, causing damage to the business. It is intriguing how Facebook’s ubiquity, which is its prime advantage, is also its main flaw. Because Facebook is used by everyone, everywhere, all the time, it is seen to have a negative impact on workers’ productivity and raises serious privacy concerns that could potentially cause major damage to businesses. Thus, this illustrates how network effects could have negative repercussions along with its positive effects.