How a Social Network Unravels
I was talking with Nabeel around the office recently, making an argument that the best form of defensibility for a company is strong network effects (I know… I’m king of the VC clichés. Save me.).
I’m sure Nabeel agrees network effects are great and all, but he had an awesome devil advocate one-liner that gave me pause. He said, “Companies that are social on the way up are social on the way down.”
It’s true. Just like in 2005 there was strong social peer pressure to join Myspace (all your friends want to friend you there), it was equally uncool to try to connect with people on Myspace in 2009.
I recently discovered that this one-liner has been fleshed out into an academic paper. Recently published on arXiv, David Garcia et al have written an autopsy on Friendster and how social networks unravel.
The rough conclusion is social networks unravel based on a combination of two factors: 1) the quality of the social graph structure in the service (described as the k-core analysis of the network) and 2) the cost/benefit ratio of using the service (e.g. do pages load fast? Is it buggy? Is it well-designed?). Wired has a simple summary if you find reading the paper (pdf) itself daunting.
I’m no less excited about investing in the next generation of network-based businesses after reading this paper, but it’s a good note to keep in the back of your mind when you think about how dominant today’s networks are: Companies that are social on the way up are social on the way down.
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