The dot-com days heralded newfangled concepts and coined numerous terms, most of which died out when the dot-coms bit the dirt.

But a few “laws” stood the test of time, and the “Network Effect” is among those that appears to get stronger, holding true Nietzsche’s words, of how that which does not kill you makes you stronger.

Known by many nicknames (like “Metcalfe’s Law,” etc.) the moniker states that the value of a network rises exponentially-- as opposed to incrementally-- as more and more “nodes” or entities become part of the network.

Examples abound, and includes the telephone network, fax machines, and many more, including everyone’s favorite network, the Internet.

Being one entity is useless, and having a few people using it starts getting interesting, but it’s when more and more people join in, and enables the others to access the others in the network that its value really explodes. The Internet became all the more valuable when everybody started using it to access the Web, email, and all other things.

Today’s cool concept-du-jour is the social networks like Facebook, Orkut (which Google acquired), Tribe, and many others. These sites enable members to create their profile, invite friends, allow friends to view their own friends and meet existing and new friends along the way.

As you might imagine, it was a runaway success with teens, and people of different age groups would soon find it irresistible as well.

There’s more, however, because inherent in these networks are the seeds of greatness as they provide features that members spend hours on, and which its members help grow by word-of-mouth or email because their participation in the sites become all the more enjoyable and fulfilling when more of their friends are part of it and they can access each other, get in contact with other friends, contact their friend’s own list of friends, and so on.

Friendster is among the pioneers in the space, and for a brief moment was a truly bright flash in the social networking scene, defining the trend that followed.


As it turns out today however, that flash was just a flash in the pan.

True, networking effects worked for Friendster amazingly well in eventually getting millions of members, but having network effects work for you isn’t enough it turns out, if your competitor also has its own network effects working for it and the playing field is lopsided towards the other side.

Its rival turned out to be MySpace.com, a much loved site that has relatively the most basic of looks as compared to Friendster’s far more elegant looking site, but which trumped the latter in all other ways, particularly where it counted the most: more members. And in the network effect, more members beget more members, and a virtuous cycle goes unchecked.

Friendster was once the defining brand for social networking worldwide, at about the same time as MySpace in 2002. But MySpace-- which started as a network targeted towards the Los Angeles music scene-- had a stronger following among the 14 to 20 year old crowd, which just happens to be the coveted demographic for advertisers, and would eventually break out from the pack and cement its leadership.

Even Google (who owns Orkut) could not stem the tide of the MySpace network effect. And for good reason: while it is true that in the world of websites, all your competitors are just a mouse-click away, in networks like MySpace, members are reluctant to do so because for one, they’ve already invested time and effort to built their profile and pages; and for a another, their circle of friends are already in place.

The one big factor that may cause members to switch to (or simply create another account) in another site is if that site has more members, fun or opportunities for networking. MySpace has seen this work for it, to Friendster’s detriment.

In a year’s period starting from September 2004, MySpace’s traffic is reported to have jumped 840 percent and according to Nielsen NetRatings, its numbers in visitor growth is even more impressive. Its unique visitor rate has grown from more than 1 million (already a number most other sites would die for) to more than 17 million per month. And that is still the “unique” visitor count, which doesn’t include repeat visits yet or pageviews.

Friendster on the other hand, has seen its numbers dwindle from more than 1 million unique visitors per month to over half that-- 585,000-- during more or less the same period.

It had gotten so bad that Friendster resorted to tactics that brushed the limits of ethics and would eventually find itself in the receiving end of a public outcry when it invited people to join by emailing those who didn’t respond to the previous emails of their friends who were members of the site, even if they were sent the ignored initial invitations more than a year ago, illustrating just how bad things have gotten for the one-time social networking king.

Friendster can console itself with having relatively good numbers still, as compared to its other competitors, or other sites for that matter. But as the axiom goes, tasting success and then losing it is worse than not reaching it at all. And in Friendster’s case, it’s simply that if there’s something that’s worse than being a “have-not” is becoming a “has-been.”

The lesson here is that the Network Effect is indeed alive and well, strong as ever. But it works best when you have the most popular network, and as Friendster found out during those crucial months when it was neck-and-neck with MySpace and before the latter broke away, that an 800-pound gorilla will still trump a 750-pound one.