Getting out of Facebook Fatigue

We have a saying in India - "Nayi nayi Dulhan sabhi ko achi lagti he" (Everyone like the new bride). Can the same be said about Facebook now when the number of FB users in U.S has gone down for second straight months? No doubt that Facebook brought us closer to our friends , made the web world a small place to hang around but also brought the need of managing our online image and hence the need to self-censor. Plus those frequent irritating updates on your newsfeed from one or two individuals in your list making you think if you really want to know about all their activities until you want to sleep with them.

There is no doubt that facebook growth at some point of time will moderate given the fact that it depends on the internet penetration of any given country. The law of diminishing factor will start playing its part. So it should not lose sleep over the stagnating number of users but rather focus on how much average time its users are spending on Facebook, how much it can engage its users. If this user time is decreasing or stagnating , then it should certainly be wake up call as it will directly impact its advertising revenue. It is still a smaller player than Google as far as the ads revenue are concerned but certain to go through the adoption curve which perhaps would tilt the revenue share the other way.

At times, people get confused and start valuing a web company on the basis of the extent to which it engage its users.For example , Angry Bird - the game is inherently very engaging and the player gets so immersed in it that he/she gives little notice to the ads ; so it still proves to be a bad business. Now take Google, they increased the value of their Adwords by creating several non-immersive pages around google.com that makes us sitting on its sites for far more time than say when Google started. The adwords remained the same , the ads quality is more or less the same, even the way they try to get noticed is same but still we are seeing more of them with more opportunities to click on them. And then they introduced the win-win adsense and started syndicating the ads to billions and now with Android , they have captured the mobiles space. 

So here is the lesson for Facebook - Invent multitude of products and features as done by Google. But they have not done it yet. Facebook.com needs be more than a place where we can share some updates, chat a bit, tag friends, upload some photos, and do a bit of gaming - not one where we come only to refresh ourselves , sort of entertain ourselves unlike Google where we go for our needs - searching , gmailing , sharing docs et all.

Network Effects Revisited

In network effect , the utlity of a product increases as more and more number of people use it. So the more ubiqitious the product becomes , the more valuable it is. Example includes mobiles , telephones, fax machines , Social Networks, web marketplace like eBay, Groupon (the higher the free subscribers the better are the chances to meet the minimum guaranteed number of purchasers for the deal to actually materialize),  Wikipedia, Stock Exchanges(yes , as the number of participants increases the transaction cost decreases). 

What about SQL?? (Why all/most databases use this as their basic language?)

The initial value of any of the examples mentioned above depends on the quality of its offering and not on the number of people using it. This is the value generated by the offering when there are no other users.The initial quality is the key to atract the users which calls on other users also to join say through word of mouth. The product overall value accelerates once a certain critical mass joins in and derives value from interactions/connections with each other.

Drawbacks

Firstly,  it leads to congestion and slowly after one point of time the value of the product starts diminishing. This happens in case of telephone/mobiles networks wherein if the infrastructure is not scaled at appropriate time , then each additional user will increase the load on the network and decreases the value for other users. Is this what we are seeing happening with the Google Search engine. As pointed out in the article 'Why We Desperately Need a New (and Better) Google' , the search engine has become more of a jungle with spammers and marketers hunting around with their Ads and Sponsored sites and hence losing out on value. Thats what happened with Bill Gates who left Facebook due to huge number of friend requests pouring in; for him the value of the network started decreasing. Social Networking sites like Facebook surely will need to go an extra mile to safeguard the 'Spirit of Community' which will get destroyed with increasing number of friends/followers in one's network. The network will no more be social but again the same jungle of spammers and advertisers what Google is today.

The other drawback is that it causes vendor lock-ins wherein the customer becomes dependent on the provider for products and services and is unable to switch to another vendor. Microsoft has been doing that with its office products which required one to have MS Office to remain compatible with others many using it until Google Docs and OpenOffice's of the world came up and era of Free and Open Source Software (FOSS) got some momentum..

If there are no competitors to a successful network , then the monopolism sets in and the network provider starts hiking its charges and put restrictions. These restrictions out of the monopoly nowadays are inspiring many firms with new revenue model. The best example being Linkedin which restricts almost everything except your capability to add connections(that will come soon ! its just the beginning , let them face some 'congestion'. There is certainly going to be an inflection point where each new user will make the life harder for existing users. Imagine twitters and facebooks of the world charging you for making a status update.What will happen then? Multiple networks will then compete on an even similar basis, the core product value will again gain prominence. Eg: There are more fax machines in the world now than ever before but its value has decreased because of other substitutes like email, scanner, faster courier , etc. So the numbers have lost value here while the product is inherently losing out with modern ways of communications).

And if there are competitors to a network , then the silos sets in wherein each player starts setting their own standards and benchmarks. Thats what we are seeing in Mobile Operating Systems war - from Nokia and , Blackberry to Google and Apple all players trying to form their own community which promotes their distinguised OS.

One other interesting drawback can be that the markets can adopt an inferior product in place of some superior alternative just because of the network effects. For example i feel that Macs PCs are superior to Windows one but still its the Windows who are dominating the market. Same case with Apple iOS and Android and its the Android which seems to be winning the race. And governments/regulators do realize that since markets cannot be matured enough to choose the best standards/practices/products/networks , its the government who should take the lead to investigate and monitor the firms intention of making any offerings. Hence we see so many antitrust actions !

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Take this one now - Consider IT as an offering , is its value increasing with more and more of its adoption. If we go by Nicholas Carr argument , then slowly its becoming a commodity with no strategic advantage. So does it mean that IT doesn't have any network effect?

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