Monday, February 4, 2019

The Network Endgame


I believe that Facebook remains a significant threat to not only Google, but most of the other players in cyberspace as well. In fact, right now, Facebook is *the* significant threat. If I were in charge of Google I would be working furiously to contain this threat while there is still some chance. We may be past that point already. In the absence of any real competition and barring any serious misstep on their part, Facebook will swallow its competition on all sides.

There will be one dominant player in cyberspace and it will be a social network. Right now, Facebook is the one to beat. It reached critical mass at least around the 500 MAU mark or so. This is an inevitable outcome of the mathematics of 'Group Forming Networks'. The compounded force of the interlocking networks makes Facebook extraordinarily sticky. In fact, mathematically, the acceleration toward the center of such a network exceeds that of gravity.

For Facebook, the battle has been all but won and it is now in the endgame.

Amongst other things, Facebook has:

- relationships with billions of people
- data on most of the active users in cyberspace
- a captive audience
- much more of the world's end-user data (photos, etc) than anyone else
- an extremely 'sticky' and interconnected network
- active support for 'group forming networks' (GFNs)
- the largest (by far) network of GFNs
- committed users
- very deep data on their users

The above assets are near impossible for another company to duplicate and as long as they are not disrupted somehow, Facebook will continue to accrete 'social mass' and increase its network 'density'. The ease of disruption is inversely proportional to the nth power of the number (n) of people in the network. At over 2 billion people, that value (1/(2^n) has become very, very small. It is so small that a network attempting to compete 'apples to apples' has virtually no chance of succeeding. To disrupt this network now will require seriously novel thinking.

As a particular example, the way to monetize page-views (and hence search, blogging, tweets, online content, etc) is through advertising. Google must cast a wide advertising net to facilitate a sale. Advertising on Facebook can be targeted much more effectively. Ultimately, the source of funding for advertising comes from sales. As long as a dollar in advertising results in more than a dollar in net revenue for the advertiser, the dollars will flow. Google cannot guarantee that your advertising dollars will create net profits. Because Facebook knows much better who will buy, when and why, they can already offer a much greater bang for the buck. Within a few years (probably sooner), they will likely be able to demonstrate that their advertising services increase net revenue -- the net profit associated with the advertising will exceed the cost of advertising, making advertising on Facebook a necessity.

Google still has search, so they will still have eyeballs. However, as more of cyberspace falls into Facebook, Google can provide search for less and less of the internet. Search is only going to draw people who are looking for something. If they already know where it is (on Facebook), they will not visit Google. This is especially true as more relevant content moves into Facebook and effectively out of the reach of Google.

Google has a lot of data on who searches for what, when and likely why. They also have a lot of data on volumes of search requests. No doubt they have some methods of determining how much of their audience is being captured and held by Facebook. The fact that Google, the company with the most intelligence on cyberspace prior to Facebook is worried means they must have seen something that worries them.

Any company that is threatened by Facebook (and I think that is most of the players in cyberspace) needs to first of all understand *why* Facebook presents such an extraordinary threat. It is not clear to me that even the people at Facebook realize why they have grown so spectacularly.

The best hope that competitors have is that Facebook stumbles badly and creates pressure for their user base to move. Failing either a dramatic challenge from a huge player like Google, Amazon, Microsoft, Oracle, HP, IBM, etc, government interference or a spectacular stumble by Facebook, the game has already gone to Facebook.

Excepting government interference, I think that Google, Microsoft and Apple have the best chance to disrupt Facebook. However, their window is rapidly closing. People and entities like companies, charities, clubs, etc. that already have data, a comfortable presence and network linkages on Facebook have no incentive to move away from Facebook. They need to be enticed away by something more compelling. As their presence on Facebook grows and is increasingly bound by linkages into the Facebook ecosystem, the ability to move them diminishes rapidly.

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