BLOG STARTUPS, VENTURE AND THE TECH BUSINESS

October 28 2011
by Todd Hixon

One Network To Rule Them All

It’s not news that Facebook is the leading social network, but sometimes (as the U.S. Army says about the Chinese) “quantity has a quality all of its own”. I was amazed when I came across the chart below, which shows how completely Facebook dominates time spent on social networks.

Source: Comscore

Mark Zuckerberg and his team have done an amazing job, navigating from a cute tool for Harvard freshmen to a social networking juggernaut. I spend a lot of time thinking about how Facebook impacts my business and our lives: how to use Facebook as a platform, segment away from it, take aspects of it to the next level, etc. Today I want to stand back and take a little perspective on this.

Facebook is a grand example of the network effect, what techies call Metcalfe’s Law, which was proposed by Bob Metcalfe, the inventor of Ethernet, a computer networking technology. Metcalfe’s Law describes why networks create natural monopolies that attract all the relevant users and freeze out competitors: once an established network has reached critical mass, new users find it compelling to join that network, versus another, smaller network, because the value/cost ratio for the new user is very high. You can see this with social networks: why take the trouble to enroll and learn to use a new network (Google+, for example), when most of your friends are on Facebook?

Metcalfe’s Law was inspired by competition between Ethernet and other computer networking technologies of the time.  Ethernet is a democratic type of network: computers communicate peer to peer with no central control, and the technical standard became open, managed by the IEEE. Although it became a dominant technology, 3COM, the company Bob founded to supply Ethernet, did not become a juggernaut. In fact, 3COM was eventually consigned to the dustbin of mature tech companies: acquisition by HP.

Those who have read J.R.R. Tolkein’s The Lord of the Rings know another sort of network effect. The Lord of the Rings created magical rings that made the potentates of his world more powerful. But, he made the “One Ring” for himself, and it watched and controlled all the other rings, making The Lord of the Rings the most powerful.

Three Rings for the Elven-kings under the sky,
Seven or the Dwarf-lords in their halls of stone,
Nine for Mortal Men doomed to die …
One Ring to rule them all, One Ring to find them …

Facebook is this kind of network: centrally controlled, designed to create wealth, and constantly re-shaped to be yet more engaging. It empowers each of us who use it to keep in touch with friends and family, promote our persona, etc., but it empowers its owners even more. Facebook’s power is more like that of Microsoft, with its total control of Windows, than 3COM/Ethernet. [By the way, I’m using the ring analogy to illustrate Facebook’s power, not to suggest that Facebook is evil like the fictional Lord of the Rings.]

Facebook has taken the network effect to a new level, although “Zuckerberg’s Law” does not roll off the tongue quite as smoothly as “Metcalfe’s Law”. Twitter, LinkedIn, Quora, etc. are fine businesses, but they do not compare.  It will be fascinating to see where this goes.

This blog was originally posted on Forbes.com: http://blogs.forbes.com/toddhixon/.

COMMENTS

November 10 2011
by Bimatoprost

Thanks for sharing another great post and I appreciate the way you have covered up different subject in one of the post.
bimatoprost

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