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The implications of this conclusion are intriguing. Social networks, as with many other kinds of networks, are showing a tendency towards a monopolistic market equilibrium that almost by definition makes social networking a “natural” monopoly. If they cannot build up a large base of unique users, they will always be on MySpace’s periphery. This presents an obvious, long-term business challenge to the competitors. In other words, the people using MySpace’s competitors are generally MySpace users that have the time and energy to maintain a presence on multiple social networks.
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Ditto for Facebook, Windows Live Spaces and Friendster. Seventy percent of Yahoo 360 users, for example, also use other social networking sites - MySpace in particular. In August 2006, Parks Associates fielded an online survey which found that among all of the key social networking services, only MySpace has a substantial base of unique users. Is the economic “gain” of a single social network great enough to for the market to naturally eliminate all other rivals? Evidence suggests a rosy future for MySpace. They must not only create a list of “friends” but also spend time and energy providing information about themselves.Īlternating between multiple social networking sites entails a greater cost than switching between instant messaging programs. In other words, social networks, unlike instant messaging, require a higher level of “investment” from users.
(Finding your long-lost friend’s page is pointless if it says nothing about them.) It also grows as the amount of information it holds increases. MySpace is obviously the largest social network and its value, like any other network, grows as the number of users increases. Instead of getting together with friends and asking, “Has anybody heard how so-and-so is doing?” social networkers can simply trace the online connections until (hopefully) they find the person in question and learn the latest. The end-result is simply a hyper-efficient enhancement to traditional word-of-mouth exchanges.
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The resulting online network replicates offline social connections and facilitates communication between the parties. Users put information about themselves onto a Web page and then link it to pages made by acquaintances. Social networking, after all, is simply a peer-to-peer communication network. So, what about a peer-to-peer communication network that demanded a higher level of consumer investment? Users will, therefore, tolerate the inconvenience of multiple providers.
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They are all available for free and use little drive space. It is inconvenient to alternate between multiple IM programs, but not terribly so. In the case of instant messaging, multiple players have survived because the monopolistic gain is relatively small. Nevertheless, the recently established interoperability agreement between Microsoft and Yahoo is merely a strategic move designed to give them an edge over AOL and Google. This would increase the level of competition, however, and therefore the major providers generally keep their IM programs closed to outsiders.
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Instant messaging, for example, would be improved if all of the software packages interoperated with each other. One is naturally better than two or more. We are accustomed to thinking of natural monopolies as those requiring physical infrastructure, but the same principles apply to cyber networks. My point is to highlight the (sometimes) overlooked fact that all of these samples have one thing in common: They are networks. There are other examples, of course, including electricity service, subway systems, roads and railway transportation. However, unless it would interoperate with the system we refer to as the Internet, it would be of little value. I could - hypothetically - go out and create a new system for connecting computers together, and maybe even convince a few friends of mine to use it. For this reason, the market will “naturally” coalesce around a single, monopoly provider unless the government intervenes.
A telephone service is only really valuable if any person with a phone can be connected to any other person with a phone.
Economics teaches that the market for some goods and services are “natural” monopolies.