I read the following article in today's (Monday 8th March) print...

I read the following article in today's (Monday 8th March) print edition of the International Herald Tribune but I was only able to find it online at:

http://www.mydigitalfc.com/news/attraction-numbers-adds-value-facebook-325

For those of you who would rather read it on HC than click on the link to the website I have copied and pasted the entire article for you below.

I think the article is well worth a read.
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IHT World Business

Attraction of numbers adds value to Facebook

By RANDALL STROSS Mar 07 2010 , SAN JOSE, CALIFORNIA


Facebook now has more than 400 million active users, up from only 50 million in 2007. If social networking still resembled a young, hip downtown nightclub scene one day a site is hot, the next its notwe might expect the crowds to decamp soon. Facebook would become another Friendster, still around but ghostly, forgotten by most.

Facebook, however, isnt likely to have such a fate. For one thing, it has attracted many olds, and they tend to stay put.

But more than demographic stability favors Facebook. The site has shrewdly emulated the network effects strategy used by another brand that has long held a dominant position in the computer industry: Microsoft Windows.

Economists use the term network effects to refer to the way the value of a product or service increases in tandem with the number of people who use it. If youre one of only 10 people in the world with an e-mail account, its usefulness is limited; add a billion more, and the practical value of yours increases apace.

A Facebook member enjoys immediate benefits when each friend joins these are direct network effects. But the average user already has 130 friends, so unless the user is unusually gregarious, the direct effects will not increase dramatically beyond a certain point.

For an individual member, the most powerful network effects may be indirect ones that come from the huge number of unknown other people in the Facebook world. Their mass attracts, in turn, suppliers of complementary products and services.

For Windows, the enormous installed base attracted third-party software developers, which in turn drew more users. The Apple iPhone has had a similar virtuous cycle. So, too, on Facebook, developers of applications like FamilyLink, Marketplace and iLikes Music create a software universe with seemingly infinite choices. And that attracts more usersand still more developers.

Facebooks decision to open its site to outside developers in May 2007 was a transformative moment, said Charlene Li, founder of the Altimeter Group, a strategy consulting firm.

Because Facebook allows developers on their site, the people who would have developed the next social networking site are now working with Facebook, she said.

Nick ONeill, founder of AllFacebook.com, a site with Facebook-related news and statistics, said, Games are the killer app for Facebook. Because of their social nature, popular Facebook games produce direct network effects.

The dedicated farmers of the FarmVille game nudge friends to play and become virtual neighbors, enhancing their own game experience.

Businesses, nonprofits, government offices and celebrities use Facebook pages to disseminate information, thus forming an ever-growing likeness of the Web within Facebooks walls. Network effects are at work here, too: users attract well-known names, which, in turn, draw more users to Facebook.

Google does not reap the benefits of significant network effects because its search algorithms are centered on the analysis of links, and operate essentially the same way whether one person or six billion are using it. Google has tried to add new services as quickly as it can or more quickly than it is ready to, as shown by the less-than-smooth introduction last month of Buzz, which gives Gmail some social network features.

Facebook increasingly makes it easy for its members to remain loyal. Outside sites can become Facebook Connect partners, offering their visitors the ability to log on with their Facebook username and continue to interact with their Facebook friends even when they arent at the Facebook site. More than 60 million Facebook members use Facebook Connect each month, the company says.

Yet Facebook Connect introduces a strategic risk. As its adoption spreads, Facebook members may spend less time at the home site, with possibly negative implications for Facebooks business model. The company says that more than half its users now log on to Facebook daily. But that share might drop significantly as more outside sites incorporate Facebook Connect.

It could turn out that taking your network with you is more powerful than having all of the activity around your network happening in a central place, said Noah Brier, head of strategic planning at the Barbarian Group, a digital marketing firm in New York.

Industry watchers constantly scan the horizon for a challenger that could displace Facebook, and Mr. Brier thinks he has a sighting: Who will be the next Facebook? he asks. Facebook Connect.

Randall Stross is a freelance writer and author based in Silicon Valley and professor of business at San Jose State University.