iamned.com Blog

In some of my posts I predict that facebook will be worth a trillion dollars in valution and that there will be never be any viable competitors for facebook, digg, youtube, and myspace. Those web 2.0 social networking sites in addition to google will continue to dominate the internet for an indefinite period of time.

However, a common refuting argument is that popular websites are displaced by newer, better sites and thus once popular websites eventually loose their appeal. The most example used is how friendster, alta vista, yahoo, classmates.com, and lycos-all once dominant sites were displaced by better sites. Alta vista, lycos, and yahoo was displaced by Google. Friendster and Classmates lost signifigant marketshare to Myspace and Facebook.

So by that logic isn’t the demise of the current popular websites; facebook, myspace,google innevitable? Acuatlly such a fate isn’t innevitable. The argument that the marketshare these websites will be sized by a newer better websites is flawed. For example, yahoo mail and hotmail still have dominance of free email market for the past decade in spite of the fact there have been thousands of competitors offering more feature laden free email services. But why do hotmail and yahoo mail STILL dominate, and by such a large margin? And why will myspace,youtube,facebook, and google CONTINUE to reign for quite possibly the lifetime of the internet?

The reason those areguments are flawed and can’t be applied to facebook, myspace,youtbe, or google is because the total ‘pool’ of potential internet users has already been exploited. Ten to seven years ago the internet was still emerging and most Americans didn’t have internet access or expressed much interest in using the internet. Only a small majority of Ameircans had heard of search engines or social networking. Lyco, Yahoo and Alta Vista were able to sieze a smll amount of marketshare, but there will still tens of million of Americans who had never heard of search engines.

Then Google came along and began to capture the remaining market share that Alta Vista, Lycos, and Yahoo had not yet siezed. As more Americans went online this created more marketshare for google. Eventually google achived a large enough userbase where it reached a ‘critical mass’.  At this point, google began to graw users away from yahoo, alta viosta, and lycos. Presently almost every American has internet and is aware of the existance of search engines. A new seacrh engine trying to compte with Google will encounter an insurmountable challenge of finding marketshare since unline in 1998 when google emergered there are virtually NO more internet users who have NOT heard of search engines to market to.

The same process also applies to transition of Friendster Classmates users to Facebook and Myspace.  Since the virtually the entire ‘pool’ of internet users is already  aware of social networking there is no more room for any new enties into that market. It would take a massive marketing budget and a superior product for any new social networking site to be able to stand any chance of displacing Myspace or Facebook’s lead.

Everywhere you turn, in the newspapers, to TV you read about the continued, unrelenting success of four specific social networking sites; Myspace, Digg, Facebook, and Youtube. You maybe have also read about how a growing number of Americans have broadband access and are engaging in inteactive, content generation in the form of crating online profiles or videos. Sounds like a great opportunity for internet entrepreneurs? Could this be a repeat of the 90’s internet boom? Maybe there is room to create a web start up capitalizing on social networking.

Or um maybe not because internet traffic has become increasingly centralized, and it’s a trend that shows absolutely zero sign of abating. The reason why Digg, Facebook, Myspace, and Youtube dominate the headlines is because 90% of all social networking based traffic goes to those sites. Smaller social networking sites include linkedin, redit, and perhaps twitter. Trying to create a social networking, web 2.0 website to compete with these established sites is virtually impossible regardless of your budget, and this is due centralization.

The reason why centralization is such a major issue regarding Web 2.0 and social networks is because those type of sites thrive on large networks, and as a network grows more people join the network, thus creating a positive feedback loop. A new site hoping to enter the web 2.0 social networking scene will probably fail because he lacks a sufficent network size intorde to trigger a positive feedback loop. Who is going to join a facebook alternative which only has 1000 members? Or visit a youtube competitor that only has a couple thousand videos when Youtube has millions?

But didn’t myspace and facebook displace the previously reining social netowrks; classmates.com and friendster? If centralization is such an impediment how were those sites able to to thrive, eventually displacing marketshare from those already established sites?

The reason why is because in 2004 when myspace and facebook were laucnhed social netowrking hadn’t grown into the phenomenon that it is today. Millions of Americans used social neworking sites before 2004, but the total pool of potential internet users who hadn’t joined a social networking site was huge. Since 2004 that pool has been draining rapidly. Facebook, myspace, youtube, and even digg have become ubiquitous. Those sites have such a large network of users that analogous to a black hole or a powerful drain they suck or centralize the total pool of internet users to thier sites.

As opposed to web 1.0 which didn’t revolve around social networks centralization wasn’t such a big issue because sites could thrive without a huge userbases. The dirtibution of traffic was more uniform instead of a winner take all pattern, which we are seeing with Web 2.0.

As these these four social networking sites (facebook, youtube, myspace, digg) continue to tighten thier stanglehold, this increases the barrier of entry for new social networking based sites. Unlike 2004 virtually every young American know knows about myspace, facebook and a majority are member of one of those sites.
In conclusion:

Web 2.0 and social networking, as opposed to Web 1.0 sites thrive on large social networks and socially generated user content (such as youtube videos).

In order for a social network to become successful & establish a positive feedback loop it must attact a large userbase from a pool of internet users. This is often achieved through marketing. Once a threshhold is reached a viral positive feedback loop triggers, and marketing can cease.
Currently the pool is drying up because myspace, digg, facebook, and youtube have most of the marketshare, and this market share continues to grow with each passing day. This is called centralization.

As a result of centralization the barrier to entry is very high (and continues to rise), and subsequently establishing a thriving web 2.0 social networking site that achieves a positive feedback loop has become exceedingly difficult and financially impractical.