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7.3 The Social Graph

Learning Objectives

After studying this section you should be able to do the following:

  1. Understand the concept of feeds, why users rebelled against Facebook feeds, and why users eventually embraced this feature.
  2. Recognize the two strategic resources that are most critical to Facebook’s competitive advantage and why Facebook was able to create these resources while MySpace has fallen short.
  3. Appreciate that while Facebook’s technology can be easily copied, barriers to sustain any new entrant are extraordinarily high, and the likelihood that a firm will win significant share from Facebook by doing the same thing is considerably remote.

At the heart of Facebook’s appeal is a concept Zuckerberg calls the social graphThe global mapping of users, organizations, and how they are connected., which refers to Facebook’s ability to collect, express, and leverage the connections between the site’s users, or as some describe it, “the global mapping of everyone and how they’re related.”Alex Iskold, “Social Graph: Concepts and Issues,” ReadWriteWeb, September 12, 2007. Think of all the stuff that’s on Facebook as a node or endpoint that’s connected to other stuff. You’re connected to other users (your friends), photos about you are tagged, comments you’ve posted carry your name, you’re a member of groups, you’re connected to applications you’ve installed—Facebook links them all.Alan Zeichick, “How Facebook Works,” Technology Review, July/August 2008.

While MySpace and Facebook are often mentioned in the same sentence, from their founding these sites were conceived differently. It goes beyond the fact that Facebook, with its neat, ordered user profiles, looks like a planned community compared to the garish, Vegas-like free-for-all of MySpace. MySpace was founded by musicians seeking to reach out to unknown users and make them fans. It’s no wonder the firm, with its proximity to LA and ownership by News Corporation, is viewed as more of a media company. It has cut deals to run network television shows on its site, and has even established a record label. It’s also important to note that from the start anyone could create a MySpace identity, and this open nature meant that you couldn’t always trust what you saw. Rife with bogus profiles, even News Corporation’s Rupert Murdoch has had to contend with the dozens of bogus Ruperts who have popped up on the service!Laura Petrecca, “If You See These CEOs on MySpace...” USA Today, September 25, 2006.

Facebook, however, was established in the relatively safe cocoon of American undergraduate life, and was conceived as a place where you could reinforce contacts among those who, for the most part, you already knew. The site was one of the first social networks where users actually identified themselves using their real names. If you wanted to be distinguished as working for a certain firm or as a student of a particular university, you had to verify that you were legitimate via an e-mail address issued by that organization. It was this “realness” that became Facebook’s distinguishing feature—bringing along with it a degree of safety and comfort that enabled Facebook to become a true social utility and build out a solid social graph consisting of verified relationships. Since “friending” (which is a link between nodes in the social graph) required both users to approve the relationship, the network fostered an incredible amount of trust. Today, many Facebook users post their cell phone numbers, their birthdays, offer personal photos, and otherwise share information they’d never do outside their circle of friends. Because of trust, Facebook’s social graph is stronger than MySpace’s.

There is also a strong network effectAlso known as Metcalfe’s Law, or network externalities. When the value of a product or service increases as its number of users expands. to Facebook (see Chapter 5 "Understanding Network Effects"). People are attracted to the service because others they care about are more likely to be there than anywhere else online. Without the network effect Facebook wouldn’t exist. And it’s because of the network effect that another smart kid in a dorm can’t rip off Zuckerberg in any market where Facebook is the biggest fish. Even an exact copy of Facebook would be a virtual ghost town with no social graph (see “It’s Not the Technology” below).

The switching costsThe cost a consumer incurs when moving from one product to another. It can involve actual money spent (e.g., buying a new product) as well as investments in time, any data loss, and so forth. for Facebook are also extremely powerful. A move to another service means recreating your entire social graph. The more time you spend on the service, the more you’ve invested in your graph and the less likely you are to move to a rival.

It’s Not the Technology

Does your firm have Facebook envy? KickApps, an eighty-person startup in Manhattan, will give you the technology to power your own social network. All KickApps wants is a cut of the ads placed around your content. In its first two years, the site has provided the infrastructure for twenty thousand “mini Facebooks,” registering three hundred million page views a month.Bryant Urstadt, “The Business of Social Networks,” Technology Review, July/August 2008. NPR, ABC, AutoByTel, Harley Davidson, and Kraft all use the service (social networks for Cheez Whiz?).

There’s also Ning, run by former Goldman Sachs analyst Gina Bianchini (Netscape founder Mark Andreessen is her CTO). Ning has over one million mini networks organized on all sorts of topics; families, radio personalities, church groups, vegans, diabetes sufferers; and is adding 1,500 to 2,000 a day.

Or how about the offering from Agriya Infoway, based in Chennai, India? The firm will sell you Kootali, a software package that lets developers replicate Facebook’s design and features, complete with friend networks, photos, and mini-feeds. They haven’t stolen any code, but they have copied the company’s look and feel. Those with Zuckerberg ambitions can shell out the four hundred bucks for Kootali. Sites with names like Faceclub.com and Umicity.com have done just that—and gone nowhere.

Mini networks that extend the conversation (NPR) or make it easier to find other rapidly loyal product fans (Harley Davidson) may hold a niche for some firms. And Ning is a neat way for specialized groups to quickly form in a secure environment that’s all their own (it’s just us, no “creepy friends” from the other networks). While every market has a place for its niches, none of these will grow to compete with the dominant social networks. The value isn’t in the technology; it’s in what the technology has created over time. For Facebook, it’s a huge user base that (for now at least) is not going anywhere else.

Key Takeaways

  • The social graph expresses the connections between individuals and organizations.
  • Trust created through user verification and friend approval requiring both parties to consent encouraged Facebook users to share more and helped the firm establish a stronger social graph than MySpace or other social networking rivals.
  • Facebook’s key resources for competitive advantage are network effects and switching costs. These resources make it extremely difficult for copycat firms to steal market share from Facebook.

Questions and Exercises

  1. Which is bigger, Facebook or MySpace? How are these firms different? Why would a person or organization be attracted to one service over another?
  2. What is the social graph? Why is Facebook’s social graph considered to be stronger than the social graph available to MySpace users?
  3. In terms of features and utility, how are Facebook and MySpace similar? How are they different? Why would a user choose to go to one site instead of another? Are you a member of either of these sites? Both? Why? Do you feel that they are respectively pursuing lucrative markets? Why or why not? If given the opportunity, would you invest in either firm? Why or why not?
  4. If you were a marketer, which firm would you target for an online advertising campaign—Facebook or MySpace? Why?
  5. Does Facebook have to worry about copycat firms from the United States? In overseas markets? Why or why not? If Facebook has a source (or sources) of competitive advantage, explain these. If it has no advantage, discuss why.