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.
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
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.