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Saturday, October 14, 2006

The Growth of Social Networking Sites, Redux

If you came here from my previous post, skip down a couple paragraphs.

Ajit Jaokar has an interesting post over at Open Gardens titled "The mathematics of Web 2.0: Why don’t ALL social networking sites experience phenomenal growth?" He goes a lot deeper into the math behind social networks than I do here, taking a grand tour of Metcalfe's Law (referenced by me as the n-squared rule), permutations, and a little set theory. He's more focused on analyzing the growth of social networking sites and why some aren't growing as fast as others. I'm more focused on user participation and limitations on the further growth of social networking sites in general.

I do have a very simple answer to Ajit's question: Social networking sites are no different from any other site or service. There is a first mover advantage where the first company or site to gain significant traction will gain an insurmountable lead. For instance, the majority of web searches are done through Google, Yahoo!, and MSN. The other search engines (even very impressive ones) are simply outclassed. The example isn't watertight since search engines don't have as much of a vendor lock-in effect that a social network has since users are more deeply embedded in a site like MySpace than Google. The value of MySpace's network is so great precisely because it has so many users. New users go where the number of potential friends is greatest, and MySpace is king in that area.

Ajit also makes the point that whether you analyze potential user interactions as individuals or as groups matters a lot because groups of people interacting with other groups dampens the potential number of interactions by many orders of magnitude. (However, I think his math may be erroneous. For instance, the calculation of 10 objects taken 3 at a time seems to be confused with how many possible ways to put 10 people into groups of 3 and then seeing how many possible interactions there are. Am I reading that correctly?) Certain social networks have tiered memberships where users get segregated into different groups, and that may explain their lack of success. While I think architecture is useful in explaining why users choose
one service over another and why network effects don't kick in, oftentimes the first mover advantage where the winner takes all (or most) explains the market share distribution.

Of course, we're both working with datasets that are incomplete so it's hard to come to any definitive conclusion. I suspect that the growth rate in MySpace's user base will start to flatten in the near future if it hasn't already. A couple of reasons: competition from specialized social networks, increasing commercialization by Burger King, Fox, and other companies looking to reach the younger demographic, and the 90-9-1 rule that explains the observation that
the majority of user contributions are done by 1% of the user base.

User participation is the limiting factor in the growth of social networks, or perhaps it should be the density of social interactions in those networks. The users who are inclined to participate in
social networks are already on MySpace while those who aren't have already checked out. Those 30 million or more abandoned MySpace profiles are the remnants of their discovery that MySpace is not for them. Any companies looking to market their latest TV shows or fast
food item to those users may be sorely disappointed by their lack of response.

However, there is a distinction that must be made: the number of page views is determined both by active users and by curious visitors. The active user base is small, on the order of 1% of the total user base, but the number of visitors (lurkers, those who don't participate, but only vicariously observe) is much, much higher. So, in that sense, social networks may be marketed under a false premise: that of connecting people around the world with each other. In reality, they are likely dominated by a small minority made up of hyperactive users and corporations bent on subsuming any significant marketing platform. These active users contribute most of the content and give the appearance of a costant buzz of activity. Their efforts in turn draw in visitors who round out the many millions of page views that MySpace gets.

So the value equation may be crudely expressed as

MySpace value = ad revenue from active users + ad revenue from visitors + miscellaneous (sales of music tracks, Google ad deal, etc.)

where active users are a function of the total user base (.01*total user base) and visitors are a function of active users (active users draw in visitors).

Update: Donna Bogatin over at Digital Micro-Markets has blogged about the increasing commercialization of MySpace and Facebook. She has some great examples. Will users eventually get fed up with these hackneyed PR efforts?

Related Posts:
Is The Social Networking Market Saturated?
How Sticky Are Social Networks?
Participation Inequality: The New Pareto Principle (90-9-1 Rule)
The Rise of Specialized Social Networks (Plus a Review of SocialPicks)


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