Facebook's fragile network effects

 
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Network effects occur in a service when the value of that service to its users grows with each new participant. Generally strong (non-linear) network effects lead to winner-take-all market conditions where it is almost impossible to compete head-on after the market leader has significant scale.

Craigslist is a great example, and Chris Dixon has a great post outlining how competition is occurring against them (since head-on has been fruitless). Within social networking, you of course have LinkedIn and Facebook with the business and personal monopolies. 

On the face of it (pun intended) these seem unassailable in the same way as Craigslist. Yet even though Facebook has about five times more users than LinkedIn (~1B to ~200M), I think that Facebook's network effects are more fragile than LinkedIn's.
The difference is that Facebook's network effects are predicated on a coolness factor with young people, whereas LinkedIn was never cool.

Imagine if Facebook suddenly became actively uncool to use in high-school or college, and at the same time there were cooler alternatives. Younger people generally have very closed networks relative to older people who have friends from different eras of their life scattered about. As a result a school could change focus on using a new service in days or weeks without much downside to these younger users.

Why might Facebook become actively uncool?

What could be cooler to use than Facebook? Hard to say, especially since I am not in this demographic, but my guess would be things that more closely align with the everyday lives of popular kids.
  • More ephemeral (like txting, twitter, etc.).
  • Faster creation/collapsing of private groups/flash mobs (like Google hangouts)
  • More centered around meeting new people (like Badoo)
  • More streamlined mobile UI (like Instagram)
  • More fun (like Formspring)

Consider Paul Graham's footnote from his recent essay on How to Get Startup Ideas:

Here's a recipe that might produce the next Facebook, if you're college students. If you have a connection to one of the more powerful sororities at your school, approach the queen bees thereof and offer to be their personal IT consultants, building anything they could imagine needing in their social lives that didn't already exist. Anything that got built this way would be very promising, because such users are not just the most demanding but also the perfect point to spread from.

You could argue that it doesn't matter since now Facebook has all the old people and that's where they're going to make all their money. But that would put them in the same category of Classmates.com and AOL. They have to worry about the young people because young people are the early adopters of social networking technology.

So what does Facebook do? They buy anything that seems cool with young people and gets scale (Instagram). They try to become cooler like by making their mobile apps better (e.g. their going native campaign). They try to make their network effects less fragile by increasing switching costs (Facebook connect, Timeline, messaging).

I started thinking about this subject after listening to Jonathan Abrams and Dalton Caldwell on This Week in Startups, who both reflected on the rise and fall of earlier social networks (e.g. Friendster and MySpace).

I was never a heavy user for a long period of time of any of them, but I've put my fair share of use into Friendster, MySpace, Facebook, LinkedIn, Twitter and Path. Now I'm really just using the latter two with any real frequency. And that's the thing -- people don't have to actually remove their Facebook accounts to move the needle here, but just use them less, say to communicate with their parents and not their friends.

 

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I'm the Founder & CEO of DuckDuckGo, the search engine that doesn't track you. I'm also the co-author of Traction, the book that helps you get traction. More about me.