Social Network Dynamics

Given Facebook’s very strong earnings report, it is very easy to forget the inherent fragility of a business predicated on social contributions.

In the case of Apple, they create a superb device and sell it. Customers are primarily attracted by the device itself.

In the case of Google, they created a superb Search service and provided it for free. Users were primarily attracted by the speed and accuracy of the results. The attractiveness of the service itself increased the number of users.

In the case of Facebook and other social services however, the situation is not as simple. Facebook itself has nothing to provide its users. Instead its users are what attract new users. Increasing the number of users on Facebook and the content that they share, is the only appeal that Facebook has. If they can increase users, then the attractiveness of Facebook increases exponentially. However, the same mechanism can move in the wrong direction. If users start to feel negatively towards Facebook for any reason and users start to decrease, there is no inherent attractiveness inside the social service that will dampen the negative spiral.

This is the fundamental structural dynamic of a social network. This is the reason why social networks can rapidly arise out of nowhere and quickly dominate local societies. This is also the reason why they could very rapidly disappear if they fall into a negative spiral.

As the social networks find themselves under stronger pressure to monetise their user base, I expect a significant number of them to take a step too far. They will cross a line, causing negative feelings to build up among their users (or in the case of privacy awareness, the line might come to them). This will start the negative spiral that, without any inherent value in the service itself, will be uncontrollable.

Facebook is an amazing success story. However, I worry that they are still but a single misstep away from irrelevance.