Some years ago, when the Google Books project was getting under way, the two co-founders of Google were having a meeting with the librarian of one of the universities that had signed up for the plan. At one point in the conversation, the Google boys noticed that their collaborator had suddenly gone rather quiet. One of them asked him what was the matter. “Well”, he replied, “I’m wondering what happens to all this stuff when Google no longer exists.” Recounting the conversation to me later, he said: “I’ve never seen two young people looking so stunned: the idea that Google might not exist one day had never crossed their minds.”
And yet, of course, the librarian was right. He had to think about the next 400 years. The number of commercial companies that are more than a century old is small. So entrusting the world’s literary heritage to such transient firms might not be wise.
Compared with my librarian friend, we have the attention span of newts. We are overawed by the size, wealth and dominance of whatever happens to be the current corporate giant. At the moment, the four leading monsters are Apple, Google, Facebook and Amazon. Yet 18 years ago, Apple was weeks away from extinction, Amazon had just launched, Google was still three years away from incorporation and Facebook lay nine years into the future.
All this proves is that in the technology world one can go from zero to hero in a short time. Some of the industry’s greatest executives understood this well. Andy Grove, for instance, who led Intel for 11 years, was famous for his mantra: Only the paranoid survive. For many years, Bill Gates appeared to believe the same. And in both cases they turned out to be right: though Intel and Microsoft are significant companies, their dominance has ended.
We understand well the factors that determine the fortunes of companies that make things people buy — which is why one can predict that Apple won’t be able to sustain its huge profit margins on its iDevices. Likewise, it’s pretty easy to predict where Amazon is headed: it aims to be the Walmart of the web. Google has a goof profit model and a huge technical infrastructure but is vulnerable to a well-resourced competitor.
This leaves Facebook, a company that has one billion products (called users) and earns its living by selling information about them to advertisers. Given that holders of Facebook accounts don’t pay for the service — and are therefore free to depart at any point — you’d have thought that its long-term durability would be questionable. And yet lots of informed and canny investors disagree. They appear to regard the company as a sure-fire bet.
But how much exploitation will users tolerate before they decide to quit? We know a lot about network effects but relatively little about this, which is why a new study by three scientists at the Swiss university ETH Zurich makes interesting reading.
They examined several social networking services, seeking to identify what makes them resilient and what could cause them to decline. And they performed an empirical autopsy on a failed service — Friendster — using data gathered just before it closed. The key determinants of success or failure were (i) the average number of friends that users have and (ii) whether the difficulty of using the site comes to outweigh the perceived benefits.
Facebook is doing OK on the first of these criteria but becoming vulnerable on the second as the company tries to “monetise” its users. If Mark Zuckerberg’s empire can’t square this circle then not even the power of network effects will save it in the long run. The Guardian