Yet another love-note to MySpace is making the rounds, this time in a cover BusinessWeek article. Not to put it too neatly, but I increasingly feel like the main lessons for would-be consumer-centric venture investors from MySpace is a) that crazy things like MySpace happen, and b) such things have less permanence than they might seem. The latter point is indirectly borne out by a paragraph waaaaay down in the BusinessWeek piece:
The most basic threat to networks may be the whims of their users, who after all are mostly still kids. Take Friendster, the first networking Web site to gain national attention. It erupted in 2003, going from a few thousand users to nearly 20 million. But the company couldn’t keep up, causing frustration among users when the site grew sluggish and prone to crash. It also started with no music, no message boards or classifieds, no blogging. Many jumped ship when MySpace came along, offering the ability to post song tracks and more elaborate profiles. Friendster has been hustling to get back into the game, adding in new options. But only 942,000 people clicked on the site in October, vs. 20.6 million who clicked on MySpace in the same time.
While some of Friendster’s trouble was performance, I’m convinced that at least as much of the trouble was sheer faddishness. The crowd had tired of the place and moved on, as is likely to happen to MySpace, and to the MySpace after that. Because we have just seen a remarkable and yet totally unremarked thing: A market that had already massively tipped to one provider spun around on a dime and went to a brand new competitor — so much for network effects and lock-in.
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The social networking sites may prove to have been fads – and the sites will go the way of the hoola hoop. But, fads do possess the potential to cross the divide and develop into real products – iPod? The difference may be the ability of the product to extend its purpose beyond the initial fad – blogs vs. pogs. In the case of social networking, the fad sites you mention are, so far, no more than online club scenes. But, I am wondering if the social networking model might prove more lasting in a business communications (IR/PR) context. For example, IR/PR today relies upon a simple linear push model – company pitches journalists to get ink. This model has been upended by blogs, RSS, podcasts, citizen journalists, bulletin boards, and more. Would it make sense to develop a MySpace-type online community focused on, for example, a company, an industry or an issue?
The social networking sites may prove to have been fads – and the sites will go the way of the hoola hoop. But, fads do possess the potential to cross the divide and develop into real products – iPod? The difference may be the ability of the product to extend its purpose beyond the initial fad – blogs vs. pogs. In the case of social networking, the fad sites you mention are, so far, no more than online club scenes. But, I am wondering if the social networking model might prove more lasting in a business communications (IR/PR) context. For example, IR/PR today relies upon a simple linear push model – company pitches journalists to get ink. This model has been upended by blogs, RSS, podcasts, citizen journalists, bulletin boards, and more. Would it make sense to develop a MySpace-type online community focused on, for example, a company, an industry or an issue?
Paul,
I agree with you to a degree, but I think we have not quite seen the direction social networking will go. I have experimented with MySpace and Friendster accounts and cancelled both of them (I keep a MySpace account for my music project).
That said, there is a place for social networking somewhere, perhaps as a replacement for things like yahoo groups or for trade organizations and groups. I can see something like Perl Monks turning into a social networking group. I guess I am going to take a wait and see attitude.
Paul K: “A market that had already massively tipped to one provider spun around on a dime and went to a brand new competitor — so much for network effects and lock-in.”
I think you’re seriously overstating the case, and underacknowledging the nuance:
http://traffic.alexa.com/graph?a=2&w=640&h=480&r=3y&u=www.myspace.com&u=www.friendster.com&u=www.orkut.com&u=www.multiply.com&u=www.tribe.net
Let me revise that.
You absolutely overstate the case and underacknowledge the nuance.
Michael — In what will come as zero surprise, I disagree.
Friendster had risen to prominence on the back of widespread adoption before MySpace had even opened its doors. To the extent that the two were competitors — and there’s room there for legitimate disagreement — it is interesting and noteworthy that a) Friendster’s established network didn’t prevent MySpace’s rapid rise, and b) many Friendster users seemingly transferred allegiance blithely from MySpace to Friendster, despite so many friends on Friendster.
The latter point is particularly deserving of explanation from afficionadoes of network effects theory. They should, one would think, have argued that Friendster’s established position and network would have “locked out” MySpace, or at least made its adoption much less rapid than your fine graph demonstrates it was. Granted, we have no base case, to borrow econo-lingo, and so we don’t know what MySpace adoption would have looked like in a Friendster-less world, but it’s hard to image a more vertical-looking adoption profile than the one with which we are already presented.
Again, much of this hinges on the extent to which Friendster and MySpace are substitutes for one another, a point about which I will cheerfully express (almost) complete ignorance.
myspace makes it easier to personalize your space. literally, “my space”. that is one reason that it is a winner. secondly it permits posting of almost-nude photos.
Lock in comes from the personal relationships that develop in these communities. If these can migrate then you see switching. If they can’t you have a high level of retention.
Paul K: “Friendster had risen to prominence on the back of widespread adoption before MySpace had even opened its doors.”
This is just another way of saying that Friendster had already plateaued before MySpace became a factor.
The nature of social networking applications is that, after an initial spike, they saturate their addressable market fairly quickly, roughly following the logistic function (as can be seen from the traffic graphs of a representative sample of social networking sites).
Friendster simply did not offer enough initial value to become ultimately as successful as MySpace has become, and that was true before MySpace was ever launched, and irrespective of the launch of MySpace. But it is also true that Friendster today is ranked more highly than it was when MySpace launched.
Thus to say that the market “tipped” from Friendster to MySpace is simply wrong. Friendster was surpassed by MySpace, but both continue to coexist at roughly their natural traffic share.
While there has undoubtably been some shift of Friendster usage to MySpace, this shift has been small relative to base usage. The statement that, “the crowd had tired of that place and moved on,” is unsupported by the data. Even the Business Week article studiously avoids comparing Friendster’s pre-MySpace traffic to its current traffic.
As far as the other side of the argument, that “network effects and lock-in” should have kept MySpace out of the game, there is no mutual exclusion principle among social networking sites. Users are able to register at and use any combination of sites simultaneously, and very often do. Switching costs are insignificant.
From the user’s perspective, it’s a question of perceived value, of which “network effects” are but one component. No site, not even MySpace, has achieved, or is likely to achieve, a monopoly on perceived value.
“No site, not even MySpace, has achieved, or is likely to achieve, a monopoly on perceived value.”
Which is to say, MySpace is not a substitute, in the economic sense, for Friendster, nor vice versa, and network effects are one, but only one, component of that.