Economist Facebook Article Blows It on Network Effects October 24, 2007Posted by David Card in Media.
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.