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I think that the real answer is that the products are not direct substitutes for one another. They certainly have an overlap in feature set, but their initial focus was on very different underserved clusters, and they have very different cultures. (real vs imagined identity etc)
More details on fred's blog here: http://chimprawk.blogspot.com/2007/11/google-opensocial-and-situational.html
http://radionovafriburgoam.blogspot.com/
It would be interesting to compare numeric differences between Facebook and MySpace unique users and see how material those leads are.
Calculating market shares of Facebook and MySpace and multiplying by probable social network ad spending would be very interesting. This would quantify how economically material those international markets.
Powerful central statement, but to really prove it you have to show people leaving an incumbent to a different network and re-invest time in recreating their graph+content. However, I believe this flip in market share is the result of a gross-adds game, not a defections game.
The network effect holds only true for people you actually know or vague care about. joe schmoe in middle arkansas signing up for MySpace doesn't increase it's value for me. It could be that Facebook and Myspace are attracting totally independent social segments with little overlap and thus, it's really a matter of whoever has lower penetration in their segment getting greater adds.
One could also argue that MySpace is culturally more American, while Facebook is far more culture-neutral (and the facebook vs MySpace race in Asia could be utterly irrelevant since it appears they don't stand a chance against local players).
Finally, from a monetization point of view, greater concentration in 1 country is unequivocally a good thing. Inventory from different countries probably have zero chance of being bundled and sold together. Facebook has to find more advertisers for a more fragmented audience, while MySpace can enjoy more or less one-size-fits-all advertising deals with summer blockbusters =)
Great summary and critical look at the comparison. I like how your honest about the inaccuracies that could affect the results, but are still very observant. This is the first really good, heck the first at all, I've seen of the new Google Trends feature.
With MySpace new redesign and Facebook attempting to keep pushing out the new features I think we are in for an excellent battle over foreseeable future.
I think the network effects of social networks are strong. But the ability to multi-home is very easy. I can manage a facebook and myspace account with little extra effort. (compared to VHS and Beta where you only would want one or the other) I think Facebook also was easier to switch to because it didn't take much time to get up and going - I could make a witty profile about myself in 20 minutes.
Adam
Your central statement is "Social networks have weaker network effects than previously speculated", when looking at the whole world. But what if the network effects would stop at the borders? Or at least much less relevant beyond the country borders?
I have a hunch that factors to social networks growth include winners in early developments in a country (which player gets the hype first) and the relevance of local content (Korea is the key example).
As for the hypothetical MySpace being rooted in north American, I will recall that Facebook has always been first in Canada (see http://trends.google.com/websites?q=myspace.com%2C+facebook.com&sa;=N&geo;=CA).
Great Post. One thing however I wanted to mention is that facebook's Internalization is a great long term play. Over the next few years, economic power will be spreading from the US to many other countries. Another stat - in the next few months - China will surpass the US in terms of total internet users.
Yes, it will take time for non-US internet traffic to mature and command online advertising dollars, but facebook is making a great long-term play.
You can read more of my thoughts on this on my blog at www.socialadblog.com</p>
Great discussion. I’ve cross posted at:
http://adecon101.blogspot.com/2008/06/news-modeling-real-market-value-of.html
A few observations.
1. Data gathering is still a problem. How much overlap is there among network data? Who truly owns the member?
2. DCF and asset-pricing also cover valuation of social networks. It’s harder to choose the valid multiple as measured by the inverse of the difference between expected growth and risk. Mr. Arrington’s approach with country dominance brings better methodology to this theoretical valuation method.
3. Don’t overlook the core premise - that all Internet advertising has become a global business.
Keep the good conversation flowing.
-Dash Chang
The key implication here is that real social networks transcend the platforms and exist despite them rather than because of them. The platforms are merely communication conduits that can easily be replaced. It only takes one bridge from an existing network to switch to another platform and the whole network can move across.
A physical social network can exist through coming together in one place (school, work, club) and then transition to meeting in another location (pub, event, holiday, home etc.).
The friend gathering trend on a specific social networks soon grows as stale as beyond the initial excitement that a fast growing group brings there's an inherent limit to the interaction beyond a certain point. To recreate the excitement (if it can still exist) users will seek to repeat the exercise on a different platform.
The logical alternative is to seek a platform that provides connections with a common bind or interest that is stronger than mere existence on the network and therefore longer lasting.
good analysis. i think switching costs apply - and are important, still.
When facebook 'went viral'I feel social media networks were still in their infancy, to the vast majority anyway, with little invested by them. When there wasnt mass adoption) and user experience innovations hadn't matured on social media networks (user experience value exceeded switching costs early on) which allowed switching costs to never properly take hold.
two things:
firstly, we forget what facebook, initally anyway, was - a cluster of college 'community' networks. this was a vibrant community. this provided a sustained critical mass, which built momentum when they opened to public -
second. fb had their own network effect (which was unique to them and we forget) - a far superior initial user experience - esp with the newsfeed - which was another form of network effects - viral effects.
I think real switching costs would now apply now - far more interactions. Future disruption could only come from innovative uses of location based services (mobile)
Andy Warren. some very good points.
"Social networks have weaker network effects than previously speculated"
In the MMO industry, we went through a phase where people suggested that. I think most people ended up deciding that actually it was more a case of:
"Poorly realized or weakly supported social networks have weaker network effects than even only slightly-better new networks"
I think most people are happy with the idea that when a network is strong, it's very strong, and that when it's weak, it's very weak, but it seems that when it's "average", it's actually weak.
"How strong are the network effects of social sites, if incumbents can be displaced? Maybe it's not so strong after all"
IMHO, MySpace has historically mostly had laughably poor support for social networking, and FaceBook is hardly any better. The newsfeed for FB was great, but ... there's so much more that could easily be added at the platform level to make it much more valuable as an SN platform.
The entire messaging system, for instance, is weak compared to the basic expectations of communication.
Or, how about the ease of finding existing friends on FB, instead of inviting new ones? Awful.
thanks for publishing this data!