Umair Haque / Bubblegeneration

Friday, September 21, 2007

Research Note: Rethinking Platform Advantage

Let's discuss Facebook again - because today, the first crack in the dam appeared, as we'll discuss.

Let me begin by backing up a step, and urging you to read the previous posts and comments if you haven't already done so.

Yes, I love the idea that cool apps and their developers can gain traction much more easily. Yes, I think the whole ecosystem is cool.

I'm making an economic argument though - which is to say, I'm arguing that Facebook's current ecosystem design is foregoing a great deal of vlaue; I'm arguing that the ecosystem could be even cooler; that Facebook could, can, will, and must create more value by opening up more.

As it does, the F8 "platform" disappears and atomizes into the larger www - at least from an economic point of view.

So.

To put this another way, and to begin a bit of analysis, I'm a bit puzzled by Facebook/F8 - because from what I can see, there is no platform.

Let me try and explain.

The www is the platform - and every site or widget on it is also an open platform. Why?

In yesterday's platform economy, scale in complements + technological specificity drove huge switching costs.

But today, there is no hard technological lock-in - and it's very, very hard to create it. Let's say we create a closed standard. And we gain demand-side scale.

What happens? The same thing that happened to software players over the course of two decades - but it might happen to us over two months.

Radical innovators realize that by shifting to open models, all players can realize enormous efficiency and productivity gains. From an economic point of view, everyone's better off complementing everyone else, than a single monopolist capturing all the value.

Now, what does this outcome depend on? Cheap information. We can't open up standards when info is expensive.

Does this sound familiar yet? It should - it's exactly what's happening across micromedia today.

Let's think about Facebook more carefully. Yes, it has built a pseudo-platform.

But this platform creates no real entry barriers. Yes, Facebook enjoys switching costs - but, unlike yesterday's platform leaders, it can't limit entry.

And so new competitors are always pushing innovation - but more, importantly, they will always and everywhere create enormous, structural pressure for openness.

Just like yesterday's open source players, they can always and everywhere nearly costlessly pool their resources, unlocking relatively large economic gains - and radically shifting the balance of market power.

To wit - SixApart is opening up it's social graph.

From a strategic point of view, this was utterly, totally inevitable.

Despite all the heat I've been taking for it, this is the first trickle in a larger flood I've been predicting.

As more and more players get open, the benefits for Facebook of staying (relatively) closed will start to outweigh the costs.

If it still doesn't make sense - and it's an extremely complicated set of variables to juggle - think about it this way.

The strategic logic in all these cases is exactly the same as it was for the New York Times - as the costs of Select began to massively outweigh the relatively tiny benefits; because open players were crafting a whole new attention economy.

Lots of people have asked me why I think Facebook is evil. For a pretty simple reason.

As I've tried to point out, there is a much deeper economic logic at work here. Players like Facebook can fight it for a while - by being evil, and trying to "own" stuff.

But the concept of ownership is already more obsolete than not in the markets we're talking about.

And so even Facebook can't part the seas. At the end of the day - no matter how much Facebook spends to subsidize it, in a move strangely reminiscent of central banks trying vainly to defend openly traded currencies from speculative attacks - there is no platform there.

-- umair // 12:54 PM // 3 comments

Comments:

"But the concept of ownership is already more obsolete than not in the markets we're talking about."

How about this - it's only a matter of (very little) time before the concept of ownership of "personal" published data (whatever I publish on the web including all my attention data) becomes obsolete too.

I've been arguing for some time already that you cannot own something that was generated in a fundamentally "conversational" context. It is a con-versation in a con-text. It cannot be but co-owned... somehow.

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Emil Sotirov // 7:51 PM

looks like some other people are starting to get what you've been talking about

http://www.techcrunch.com/2007/09/21/google-to-out-open-facebook-on-november-5/

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Anonymous // 8:04 AM

I (increasingly) disagree. I think one of the growth areas for social network providers is going to be providing secure and reliably private networks (cheap virtual private networks if you like) and one of the things they have to demonstrate to users is that they can be trusted to protect your privacy.

Think Swiss Banks looking after their customers interests rather than central banks resisting currency speculation.

The value of the network to individual members is not *only* aggregate statistics. It's also the specific connections you make, which you sometimes don't want broadcast too easily.

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phil jones // 2:52 PM