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Economist Facebook Article Blows It on Network Effects October 24, 2007

Posted by David Card in Media.
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Colleague Nate Elliott tipped me off on this Economist article that takes some of the, er, steam, out of Facebook. One thing I think the Economist screws up — sacrilege! — is its analysis of the network effect potential of social networks. It posits that there are diminishing returns to the size of social networks, because you don’t want everybody in yours — exclusivity is valuable.

Well, sure. But why can’t the social network companies develop tools that let you manage your different networks: ensure exclusivity where you want it, encourage overlap where it makes sense (some of my work pals do like the same movies as I do), lock out spammers, etc.?

If those tools work, and work especially well across a big network, then you might see another characteristic of network-effect markets: winner-takes-all. Frankly, I think it’s more likely you’ll see those tools cross networks, but still, that’s what some of the hype is about. I think Google and Microsoft know just a little bit more about network-effect platforms than the Economist apparently does.

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