FACEBOOK now has more than 400 million active users, up from only 50 million as recently as 2007. If social networking still resembled a young, hip downtown nightclub scene — one day a site is hot, the next it’s not — we might expect the crowds to decamp soon. Facebook would become another Friendster, still around but ghostly, forgotten by most.
Digital Domain
Getting Older Without Getting Old
By RANDALL STROSS
Published: March 5, 2010
Facebook, however, isn’t likely to have such a fate. For one thing, it has attracted many “olds,” and they tend to stay put. (Consider AOL.) More than 50 percent of Facebook’s members in the United States are 35 or older, and only 26.8 percent are 24 or under, according to an analysis of December visitors by comScore Media Metrix.
More than demographic stability favors Facebook. The site has shrewdly emulated the “network effects” strategy used by another brand that has long held a dominant position in the computer industry: Microsoft Windows.
Economists use the term network effects to refer to the way the value of a product or service increases in tandem with the number of people who use it. If you’re one of only 10 people in the world with an e-mail account, its usefulness is limited; add a billion more, and the practical value of yours increases apace.
A Facebook member enjoys immediate benefits when each friend joins — these are direct network effects. But the average user already has 130 friends, so unless the user is unusually gregarious, the direct effects won’t increase drastically beyond a certain point.
For an individual member, the most powerful network effects may be indirect ones that come from the huge number of unknown other people in the Facebook world. Their mass attracts, in turn, suppliers of complementary products and services.
For Windows, the enormous installed base attracted third-party software developers, which in turn drew more users. Apple’s iPhone has had a similar virtuous cycle. So, too, on Facebook, developers of applications like FamilyLink, Marketplace and iLike’s Music create a software universe with seemingly infinite choices. And that attracts more users — and still more developers.
Facebook’s decision to open its site to outside developers in May 2007 was a “transformative moment,” said Charlene Li,founder of the Altimeter Group, a strategy consulting firm.
“Because Facebook allows developers on their site, the people who would have developed the next social networking site are now working with Facebook,” she said.
Nick O’Neill, founder of AllFacebook.com, a site with Facebook-related news and statistics, said, “Games are the killer app for Facebook.” Because of their social nature, popular Facebook games produce direct network effects. The dedicated farmers of the FarmVille game — it attracts 83 million users a month — nudge friends to play and become virtual neighbors, enhancing their own game experience. (That pull gives Facebook an advantage Windows lacked; its signature game was Solitaire.)
Businesses, nonprofits, government offices and celebrities use Facebook pages to disseminate information, thus forming an ever-growing simulacrum of the Web within Facebook’s walls. Network effects are at work here, too: users attract well-known names, which, in turn, draw more users to Facebook.
The White House, for example, has its own Facebook page, one of three million active pages that have an aggregate of 5.3 billion fans, the company says.
Facebook members in the United States, on average, spent more than seven hours on the site in January, according to the Nielsen Company. That is more than three times the average time spent on Google’s Web sites. Facebook’s average number of minutes per visitor grew almost 10 percent from the previous month, while the average at sites for every other company in the top 10 fell — Google, by 14.3 percent; Yahoo, 27 percent; and Microsoft, 26.9 percent.
Google does not reap the benefits of significant network effects because its search algorithms are centered on the analysis of links, and operate essentially the same way whether one person or six billion are using it. Google has tried to add new services as quickly as it can — or more quickly than it is ready to, as shown by the less-than-smooth introduction last month of Buzz, which gives Gmail some social network features.
Network effects, if powerful enough, can push a platform past the tipping point, accelerating its growth. “As the Windows example shows, once a market with network effects tips to one dominant platform, then it is very hard to tip back,” said Andrei Hagiu, an assistant professor at Harvard Business School.
But network effects alone don’t necessarily produce tipping, he cautioned. Users must also perceive a high switching cost —in this case, in time and inconvenience — if they were to move to another social networking site.
Facebook increasingly makes it easy for its members to remain loyal. Outside sites can become Facebook Connect partners, offering visitors the ability to log on with their Facebook username and continue to interact with their Facebook friends even when they aren’t at the Facebook site. More than 60 million Facebook members use Facebook Connect each month, the company says.
YET Facebook Connect introduces a strategic risk for the company. As its adoption spreads, Facebook members may spend less time at the home site, with possibly negative implications for Facebook’s business model. The company says that more than half its users now log on to Facebook daily. But that share might drop significantly as more outside sites incorporate Facebook Connect.
“It could turn out that taking your network with you is more powerful than having all of the activity around your network happening in a central place,” said Noah Brier, head of strategic planning at the Barbarian Group, a digital marketing firm.
Industry watchers constantly scan the horizon for a challenger that could displace Facebook, and Mr. Brier thinks he has a sighting: “Who will be the next Facebook?” he asks. “Facebook Connect.”
