Watch this video to hear my perspective on Line’s IPO and what it means for the future of social networking or read the transcript below.
With Line’s IPO, I thought this would be a good time to ask about the role that new social networks will play in the larger social network ecosystem. Will they cannibalize Facebook’s usage? Or can we expect to see the biggest players continue to be dominant in social networking?
For those of you who don’t know, social networking has a special place in my heart. In 1997, I launched the world’s first online social network called sixdegrees. And as part of that, we wrote a patent that defined a social network as the ability to index multiple relationships in a single database. It gives you the ability to see the people you don’t know through the people you do know.
I want to focus on the expectation that we had in 1997 when we launched sixdegrees, which is one that I think many people have had over the past 20 years while observing online social networks. In 1997, we assumed that the incumbent player in the social space would accrue a massive advantage over their competitors. The reason for that is because the incumbent player is building a true network effect model.
A “network effect” is one where each incremental user derives exponentially more value than the prior users because the prior users are already part of the system. For example, if we made the claim when we launched sixdegrees that you could meet anyone in the world through the people you knew, but there were only two other people in the database, the service would be of limited value to you.
And, in fact, the network effect is probably true for the third person, and the fourth person, and the fifth person. But at some point, you cross a threshold where it actually begins to be true that the nth person joining a system is beginning to derive value because of all of the people who have joined prior to them.
The network effect was also true for a piece of technology like the telephone. If you were one of the first two people to buy a telephone, it wasn’t of much use to you. But as millions of people began to use telephones, you saw the network effect take hold. The nth person was deriving exponentially more value than the people prior to them joining. So, you might expect that the law of network effects would govern social networks. Once a company crossed a critical threshold, you might think we wouldn’t see reinventions of social networks. We’d be seeing a dominant player and then we wouldn’t be seeing any others.