Post on 13-May-2015
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Sean ParkerWeb 2.0 SummitOctober 22, 2009
THE NEW ERA OF
THE NETWORK SERVICE
Web 2.0 Summit, 2009 - The New Era of the Network Service 2
THE NEW ERA OF
THE NETWORK SERVICE
Why companies like Facebook, Twitter, Ebay and Apple (but not Google) will determine the future of the internet
Web 2.0 Summit, 2009 - The New Era of the Network Service
COMPANIES THAT HARNESS THE POWER OF NETWORKS
WILL DOMINATE THE INTERNET
COLLECTING DATA IS LESS VALUABLE THAN CONNECTING
PEOPLE
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Web 2.0 Summit, 2009 - The New Era of the Network Service
“When the value of a product to one user depends on how many
other users there are.”
WHAT ARE NETWORK EFFECTS?
- Shapiro, Varian
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Web 2.0 Summit, 2009 - The New Era of the Network Service
• Option Value• Expected value of potential connections
between nodes
• Action Network Value• Real value of active connections
between nodes
• Switching Cost• Cost of switching networks for any
single user or group of users
THE POWER OF NETWORKS
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Web 2.0 Summit, 2009 - The New Era of the Network Service
• Network effects produce winner-take-all markets
• The big get bigger
THE POWER OF NETWORKS
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Web 2.0 Summit, 2009 - The New Era of the Network Service
METCALFE’S LAW
valueincreaseswith n2
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Web 2.0 Summit, 2009 - The New Era of the Network Service
METCALFE’S LAW
Size of Network (n)
Potential Value of Networkincreases with n2
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Web 2.0 Summit, 2009 - The New Era of the Network Service
Basic unit of value for a network company is not the data it stores, it’s the number of connections it facilitates
WHAT IS A NETWORK COMPANY?
MarketplaceseBay
Craigslist
CommunicationNetworksFacebook
TwitterSkype
GamesWorld of Warcraft
ZyngaFoursquare
PlatformsApple iPhone
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Web 2.0 Summit, 2009 - The New Era of the Network Service
INFORMATIONS SERVICES VS. NETWORK SERVICES
• Information Services • Google, Yahoo!, CNET, YouTube, MSN• Core value is collecting and processing
data
• Network Services• Facebook, Twitter, Ebay, PayPal• Core value is facilitating a relationship
between people or groups
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Web 2.0 Summit, 2009 - The New Era of the Network Service
• Craigslist• MySpace• AIM• Ebay
THE BEST PRODUCT DOESN’T ALWAYS WIN
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Web 2.0 Summit, 2009 - The New Era of the Network Service
1
2
3
1
2
3
Q1 1998 Q2 1998 Q3 1998 Q4 1998
A NATURAL MONOPOLY: EBAY
Source: Company Filings
Registered Users (MM)
Onsaleebay
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Web 2.0 Summit, 2009 - The New Era of the Network Service
0
75
150
225
300
0
75
150
225
300
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Registered Users (MM)
ebay
A NATURAL MONOPOLY: EBAY
13Source: Company Filings
Web 2.0 Summit, 2009 - The New Era of the Network Service
“A MONKEY COULD RUN THIS BUSINESS”
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Web 2.0 Summit, 2009 - The New Era of the Network Service
WHY DID EBAY BUY SKYPE?
Purchase Price in 2005: $2.6B• 75mm Registered• $70mm Revenue
Purchase Price 2009: ?• 521mm Registered• $740mm Annualized
Revenue
15Source: Company Filings
Web 2.0 Summit, 2009 - The New Era of the Network Service
THE FALL OF FRIENDSTER
• Social networks are communication services, they obey the laws of networks
• Friendster was not a fad
• The company failed due to difficulties scaling the infrastructure
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Web 2.0 Summit, 2009 - The New Era of the Network Service
3
5
8
10 friendster myspace hi5
THE FALL OF FRIENDSTER
Source: Google Trends
Search Index Volume
200417
Web 2.0 Summit, 2009 - The New Era of the Network Service
38
75
113
150
38
75
113
150
9/07 11/07 1/08 3/08 5/08 7/08 9/08 11/08 1/09 3/09 5/09 7/09 9/09
FacebookMyspace
FACEBOOK VS. MYSPACE
Source: comScore Media Metrix
Unique Visitors (MM)
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Web 2.0 Summit, 2009 - The New Era of the Network Service
HOW THE HELL DID MYSPACE LET THIS HAPPEN?
2005• Facebook: 8mm users• MySpace: 60-100mm users
• Systematic product failure• Technical limitations• Facebook had a secure beachhead in
college market19
Web 2.0 Summit, 2009 - The New Era of the Network Service
Win 1
Win 2Win 2
CAMPUS WARFARE
Facebook SchoolsBerkeleyColumbiaCornellDartmouthHarvardStanfordYale
Enemy SchoolsBaylorColumbiaStanford
ColumbiaStanford
Tactical SchoolsSouthwesternTexas A&MUTA
Win 1 BaylorWin 2
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Web 2.0 Summit, 2009 - The New Era of the Network Service
0
5,000
10,000
15,000
20,000
0
5,000
10,000
15,000
20,000
7/1/08 9/1/08 11/1/08 1/1/09 3/1/09 5/1/09 7/1/09 9/1/09
StudiVZ SitesFacebook
BATTLE FOR GERMANY
Source: comScore Media Metrix
Unique Visitors (MM)
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Web 2.0 Summit, 2009 - The New Era of the Network Service
BATTLE FOR GERMANY
Source: Google Trends
2004 2005 2006 2007 2008
StudiVZ SitesFacebook
Search Index Volume
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Web 2.0 Summit, 2009 - The New Era of the Network Service
DATA PORTABILITY IS A RED HERRING
• Value of connections is super-linear, value of datasets is linear at best
• Moving data is hard, moving people is harder• Example: ebay’s auction database
• Data portability is easily solved by converters and adapters.
Web 2.0 Summit, 2009 - The New Era of the Network Service
converters and adapters.
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Web 2.0 Summit, 2009 - The New Era of the Network Service
• AdSense
• Dodgeball(?)
• Orkut
• Google Talk(?), Wave(?)
NETWORKSERVICES
GOOGLE DOESN’T OWN NETWORKS
• AdWords
• Gmail
• Search
• Maps, etc.
INFORMATIONSERVICES
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Web 2.0 Summit, 2009 - The New Era of the Network Service
CLOSING THOUGHTS
1. Over the next decade the aggregate value of the emerging class of network companies will dominate the internet
2. NEW economic value on the internet will not be generated by search
3. Google will continue to be an economic powerhouse but its relative importance on the internet will decline
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