Facebook has over 175m users. MySpace has over 125m. Twitter's traffic has grown at over 1,000%.

All three services are considered to be extremely valuable and their popularity is where the value is at. With their users, they're worth hundreds of millions or even billions of dollars. Without them, they're worth close to nothing.

All three have been the beneficiary of a buzzword that has grown in prominence over the past several years: network effects. The more people that use these services, the more valuable they become to other people, propelling them to even greater popularity.

To anyone hoping to build the next Facebook or MySpace, the idea that you can overdo network effects is probably a crazy idea.

But it's an interesting one that ReadWriteWeb's Bernard Lunn raised the other day. In asking "Is there a reverse network effect with scale?" he points out:

...in some cases, a reverse network effect may exist: as new people join, others are motivated to leave. This dramatically affects the length of the competitive advantage enjoyed by these ventures.

He suggests:

In a social network, the value for existing users of a new user joining the network plateaus once users have most of their own contacts in that network.

It's an interesting idea. One that makes sense. As Lund says, once all your friends are on Facebook, it doesn't really matter how many other people join.

Lunn believes that there are two types of networks: those without "messy human interaction" and those with. The former are utilities (he gives Skype and PayPal as examples); the latter are platforms for human interaction (think Facebook and MySpace). And the former are largely immune to reverse network effects while the latter could fall victim to significant reverse network effects according to Lunn.

If the Facebooks and MySpaces of the world are too aggressive in monetizing to live up to their valuations (which could never be so high if they were utilities), for instance, they could see use not only plateau but fall off a cliff.

While that seems unlikely right now, we should keep in mind the example of Friendster, which quickly became the hottest social network at one point thanks to network effects and then saw them turn into reverse network effects. Turned off by performance issues, users left in droves. Overaggressive monetization on a social network like Facebook could do the same thing and Facebook has played with fire before.

I think Lunn's point is well made and operators of fast-growing social networks should consider that too much of a good thing just might become a bad thing when it comes to network effects if not managed correctly.

Photo credit: Sreejith K via Flickr.

Patricio Robles

Published 18 March, 2009 by Patricio Robles

Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.

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Comments (4)



Interesting theory, but doesn't this depend very much on individual networks, and the relative saturation levels within them?  For instance I don't really care about other users on Facebook, what they do and how they use the site doesn't affect me.  All I care about is how many of my network are on the site.  As long as technologically the platform holds up then I don't see a problem.

over 9 years ago

David Iwanow

David Iwanow, SEO Product Manager at Marktplaats.nl

Great thought, these were similar to discussions around Hotmail/Y!mail services a few years ago before google was a topic of discussion and facebook & myspace founders were still at school. As long as you can find your friends easily and have control over what is displayed or not displayed I cannot see a reason to leave these sites.  The only factor that may reduce my interactions is overkill with ads which hotmail seems to have finally started to address...

I think that the only once these services start to turn towards an open model that people may consider moving networks.  The only issue is that what ever site you setup your OpenID with is now forever tied with that site and options like Facebook Connect are these networks reaching out spreading their users but still retaining control. 

You have people such as Chris Saad of Faraday Media who work on the open standards APML project.

Their basic overview of APML is that it allows users to share their own personal Attention Profile in much the same way that OPML allows the exchange of reading lists between News Readers. The idea is to compress all forms of Attention Data into a portable file format containing a description of ranked user interests. Read more about their take on open social media profiles.

over 9 years ago


Douglas Karr

The answer, using human behavior, is yes as analyzed by The Economist.  We have a social network here in Indiana, called Smaller Indiana, that's just surpassed 5,000 members... and even that's too large to handle.  To allow the network to thrive, we encourage group creation so people can naturally congregate.

Size only matters when you're looking for funding or advertisers... to the average human, they need to manage a very small network of trusted friends and followers.

over 9 years ago

Neil Warren

Neil Warren, Publisher at 2N Media Ltd - ModernSelling.com

One key element is surely what the platform is expected to be for, from the users point of view?

Pony Express/Royal Mail might have had limited appeal if they only went to a handful of selected addresses, and the telephone as a communication tool would have equally failed, had it just been Mr Marconi you could call. The fax machine, indeed, seemed primarily designed for one to one communication only, and looks to be dying out given that it's main purpose became to print out other people's sales & marketing messages.

So, are you expecting any of these networks to exist just for you to easily maintain the status quo of you existing network of friends and/or colleagues? Or do you anticipate that they could/should be used - like a really busy pub, or social club, or conference/exhibition, to "make new friends and influence people?"

over 9 years ago

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