Tuesday, February 10, 2004

Barney Pell Responds on the Value of SNS

My unidentified uber-LinkedIn friend in the previous post is Barney Pell. I sent him a link to the piece, and he's responded thoughtfully and at length. I'll attempt to address some of his points in a forthcoming piece, but on others, he's probably got me pinned. Three cheers for network-mediated pruning of ideas!

Barney writes:

Initial vs intended use: it's definitely a good point.

To paraphrase: Initial use is just playing around, people won't pay for
it, and we have no evidence that people will pay for the intended use or
that the intended use will really deliver value for the users at all.


1. There is still value in giving something away for free until the
network effect kicks in and starts driving the intended value. That's
just basic business strategy in networked information goods. Of course
it is risky (napster) but there have been significant successes.

- paypal was free, and paid users to spread it virally, who did so
without much in the way of real transactions for quite a while (I'll bet
the # of paypal users was huge compared to the # of ebay buyers for
quite a while). Then it wound up becoming a money-generating machine.

- classmates.com and the dating sites (match.com) are money machines.
They all started out free until they built their network. It doesn't
take a huge imagination to see that the social networking sites
(friendster, tribe, orkut, etc) can compete in the dating game once they
hit sufficient scale.

- for that matter, napster might well have made money had it not been
for the lawsuits. I disagree that they failed to monetize completely.
It is quite possible that their time ran out before they managed to
monetize, in which case the lawsuits were a material cause of this
failure (not a red herring as you suggest).

2. That these SNS sites are growing so fast leads one to ask whether
there might in fact be true value even in the initial use (besides
entertainment from building a network). One such value is that of
"organizing and tracking" your friends. People change emails frequently
nowadays (esp personal ones, given spam problems and links to ISPs). If
we all sign up on a SNS, then so long as we update our contact info with
the SNS (which is a condition of use), then we'll be able to continue
to find each other independent of these address changes.

Related to this theme, I have found a recurring pattern on linkedin of
people wanting connections to people they already know but have lost
touch with. And I have been reunited with acquaintances. There really
is power in network connections. It's just like when you meet an old
friend and ask what happened to so and so, and hope that one of you is
still in touch or otherwise tracking the lost acquaintance.

3. If it isn't for the initial value (that of network building and
tracking), we need to ask what these users are expecting to get
eventually. The best time to build a network is when you don't need it.
You only change jobs or need to raise money once in a while, but when
that happens, you really need your network already built. So these
efforts can be viewed as a form of network insurance for future use.

The insurance analogy is actually quite interesting. The ratio of
insurance claimers to insurance payers is probably less than 1%, which
you found so damning with respect to linkedin... Yet people go right on
paying, and it certainly isn't done for mere entertainment value.
Initial costs with the expectation of ultimate benefits are actually
quite standard in traditional markets as well as online services...

And all that was generated at 2AM after a long day's work at NASA. Barney, you really have to start blogging!

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