Line Vs. Facebook and the Future of Social Networking
Articles Blog

Line Vs. Facebook and the Future of Social Networking

So today was Line’s IPO — this is the Japanese
messaging app, actually owned by a Korean firm. And I thought today would be a good
time to talk about the role these new social networks will play in the larger social network
ecosystem. Will they be disruptive to Facebook? Will they cannibalize Facebook’s usage or
can we expect to see the biggest players continue to be dominant in social networking? For those
of you who don’t know, social networking has a special place in my heart. I built beginning
in 1996, we launched in 1997, the world’s first online social network called sixdegrees.
And as part of that, we wrote a patent which defined a social network as the ability to
index multiple relationships in a single database and see the people you don’t know through
the people you do. And what I really wanted to focus on today was the expectation that
we had, and I think many people have had over 20 years of online social networks, that massive
advantage accrued to the incumbent player. And the reason for that was because the incumbent
player was building a true “network effect” model. So let me define what I mean by “network
effect.” Then I’ll share with you my thoughts about who I think will dominate the social
networking space in the years to come. So, first the network effect model. A network
effect is one where, a business with a network effect is one where each incremental user
derives exponentially more value than the prior users because the prior users are already
part of the system. So for example, if, when we started sixdegrees, we made the claim that
you, by joining sixdegrees, could meet anyone in the world through the people you know,
you could meet other people, but there were only two people in the database, the service
was of limited value to you. And, in fact, that was probably true for the third person,
and the fourth person, and the fifth person. But at some point, you cross a threshold where
it actually begins to be true that some nth person joining a system is beginning to derive
value because of all of the people who have joined prior to her. The same could have been
said for telephones. If you were one of the first two people to buy a telephone, not much
use. But as millions of people began to use telephones, it was a true network effect.
The nth person was deriving exponentially more value than the people prior to him or
her joining. So, you would expect, similar to a law of gravity, that the law of network
effects would govern social networks and once a company crossed a critical threshold, we
wouldn’t be seeing reinventions of social networks. We’d be seeing a dominant player
and then we wouldn’t be seeing others. The history of social networks though has been
anything but that. So sixdegrees, probably the largest social network from ’97 to ’99,
2000, and then Friendster was the largest social network until Myspace was the largest
social network until Facebook. Now while sixdegrees measured its members in the millions, Facebook
is now measuring its members in the billions. And you would surely expect that entrenched
position where a user has absolute certainty when they join that just about everyone they
know is already going to be on the network, that it would be very difficult for new social
networks to take hold. And I should say that by social networks, I’m referring to any service
where the core piece of functionality revolves around some semblance or some instance of
a contact manager where you have a list of people who have either validated your relationship
to them or you’re following them, they’re following you. All of these social networks
have that central asset as the core to them. Even with Facebook’s billion, billion and
a half, to two billion members, what we’ve actually seen over the past year is a decrease
in user engagement. Now, there are different metrics by which you would consider user engagement.
I’m not sure whether when people talk about decreasing user engagement we’re talking about
minutes or posts or shares. But in fact, some of Facebook’s user engagement metrics are
beginning to decline and the reason for that is they’re being cannibalized by new social
networks. Exactly the opposite of our law of network effect, our law of social networks.
So, that’s incredibly peculiar, and I wonder whether or not that will continue to be the
case. I’d love to hear your thoughts. My own sense now is, after watching this space of
20 years, that what we’re going to see is new social networks, whether they’re new because
of their user experience or because of their UI, it’s sometimes the slightest or subtlest
of tinkering that will continue to emerge and cannibalize existing social networks.
The brilliance of Facebook is that it achieved such large size that they’ve been able to
maintain their position over the past several years not by reinventing Facebook, but by
acquiring their competitors, by acquiring Whatsapp, by acquiring Instagram. And what
we’re seeing is the cannibalization is occurring through both through their own properties
and through properties like Snapchat and now Line, which is a messaging app operating largely
through Japan and a few other countries in the Southeast Asian theater. But what’s interesting
is this notion that the largest player will not be able to crowd out new entrants. In
fact, my prediction is over the course of the next 3, 5, 10 years, you will begin seeing
people use social networking apps that you’ve yet to hear of today. And if Facebook is going
to continue being the dominant company, it will not be because Facebook reinvents itself.
It will be because they have figured out how to continuously use their currency to acquire
the new social networking apps. That’s the topic for today. I’d love to hear your thoughts.
I’d love to know whether or not you think the incumbent players are the ones that you,
that younger people will be using in 3, 5, 10, 20 years, or whether you agree with me
that the history speaks to a reinvention of this space and we’re going to see that now
I think in the same intervals we’ve been seeing it, but in order for the big players to stay
large, it’s going to be through an M&A strategy. Please hit me up in the comments and I’ll
be sure to respond. Thanks.

2 thoughts on “Line Vs. Facebook and the Future of Social Networking

  1. I don't think Facebook will be the dominant player in the future . Once disrupted it'll shrink to meager . Facebook bought whats-app and Instagram as a defensive acquisition , i.e. to stop them from disrupting its own platform . After losing it's platform Facebook is less likely to regain it's glory with whatsapp and Instagram . Because Facebook is different from all these new social network platform , it has unique target audience i.e friends and family in broad . SO CAN FACEBOOK BE DISRUPTED ? Yes . .

  2. Shadan- I agree that both acquisitions were defensive, but they were brilliant nonetheless. It doesn't appear that, in the near term, there are any inhibitors to growth at Instagram or WhatsApp.

Leave a Reply

Your email address will not be published. Required fields are marked *

Back To Top