Accelerated Decline: Network Effects on FB’s Way Down

To start, this is not another Facebook-is-more-ephemeral-than-Snapchat, look-at-how-good-I-am-at-wordplay post. Also, Facebook is not dead. Just look at their mobile monetization success.

However, when Facebook loses part of a group of people, the rest of the group will disappear simply because the first part did. Sounds similar to the network effects that got those people to join. This is network effects on the way down. Some people did not join because of the single player utility that Fred Wilson talks about here. These people only saw enough value to be worth joining once their friends were on. Put differently, they only saw multi-player utility.

These same people will also not see enough value once their friends leave. Thus viral decline.

My sister is a high school senior. She does not have a smartphone. Nor does she read TechCrunch. She does not know about the social unbundling that mobile has caused and the phone’s contact list and blah blah. She just knows that her friends have left Facebook and she sees very single user utility. I was surprised that she left FB even though she does not have a smartphone (mobile is widely considered to be the Facebook killer).

There was a recent study that modeled Facebook’s rise and fall like a virus. Of course, they used google searches as a proxy for “infection”, which is flawed. Without getting into the statistical issues of the study or the counterclaims, it raised the question, “What does a social network decline look like?”

I think it looks like my sister who stopped using Facebook even though she personally has not replaced it. Her friends were her main source of value and they left Facebook.

Facebook is far from dead, but the network effects that gave them such high enterprise value and customer lock in, could make them decline faster once the ball starts rolling.