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The Business of the Social Graph
Jon Lebkowsky, 28 Nov 07
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I've been reading and thinking about an October 18 piece in The Economist, "Social graph-iti," a critique of Facebook - actually a critique of excessive valuations "bandied around for Facebook and other social networks," saying that high valuations (assumptions that Facebook is worth billions) are the result of a misunderstanding of the "social graph," which is defined as "the network of connections that exist through which people communicate and share information." I would've said "a person's network of connections etc." - to me the definition is node-centric. Actually, the Silicon Valley moneychangers would probably substitute "user" for "person," where user is the new, somewhat empowered version of "consumer." When you're making business, and trying to scale to billion dollar valuations, people inevitably go away, replaced by statistical data about their behaviors as they relate to markets.

But I digress. I want to explore The Economist's comments about Facebook and the social graph, interjecting my comments in square brackets

Silicon Valley's craze for the "social graph", however, is overdone. The term has been around in computer science for decades, says Eric Schmidt, Google's chief executive, so it is puzzling that Mr Zuckerberg should get any special credit for using it. [I don't think he's getting credit for using it. He's getting credit for taking it closer to household-word status... and for leveraging the social graph more effectively than anyone to date. Who used it first, and when, is irrelevant history.] "We have address books, and the sum of the address books is the social graph," he says. [I think the social graph must also include communication and knowledge sharing. Entries in an address book may facilitate that, but I think the context is too static and arbitraty to qualify. Consider the next sentence, which suggests that you have to do more to get into the "social graph" business.] Companies such as Plaxo, which help to synchronise address books, and Google itself, which has a primitive address book in its web-mail service, plan to turn these books into fully fledged social graphs that can do useful and productive things, perhaps including new variants of mini-feeds.

But unlike other networks, social networks lose value once they go beyond a certain size. [Lose value for whom? I explain one way that this is true in "The Value of Connections." If you have too many connections, the value of each connection may decrease because your attention is more and more divided - or the value remains about the same and you ignore the additional connections. But social network companies like Facebook see value in numbers, based on the assumption that more numbers can be converted in various ways, and true conversions - purchases or clickthroughs - are valuable.] "The value of a social network is defined not only by who's on it, but by who's excluded," says Paul Saffo, a Silicon Valley forecaster. Despite their name, therefore, they do not benefit from the network effect. [Again, that's a matter of perspective.] Already, social networks such as "aSmallWorld", an exclusive site for the rich and famous, are proliferating. Such networks recognise that people want to hobnob with a chosen few, not to be spammed by random friend-requests. [Oddly enough, I don't see people leaving Facebook or using it significantly less because of these considerations. I'd like to see real statistics that suggest Facebook is losing users to sites like aSmallWorld. I'm not wealthy or famous enough to be there, but I asked someone who is, and he told me the site's fairly boring.]

The Economist concludes that Ning is better positioned than Facebook to win, if indeed they're running a race.

...the future of social networking will not be one big social graph but instead myriad small communities on the internet to replicate the millions that exist offline. No single company, therefore, can capture the social graph. Ning, a fast-growing company with offices directly across the street from Facebook in Palo Alto, is built around this idea. It lets users build their own social networks for each circle of friends.

This is all business, and the key question for The Economist and many investors is summarized at the end of the article:

... are Facebook and its graph really worth many billions? From an advertiser's point of view, says Rishad Tobaccowala, the boss of Denuo, the new-media unit of Publicis Groupe, an advertising company, Facebook is so far anything but the new Google.

Google targets ads based on search, and makes them relevant to users, whereas Facebook is closer to a traditional publishing model, in the sense that the site is capturing eyeballs selling them to advertisers. Ads on Facebook are "an annoyance that users ignore."

So the article makes three arguments. First, Facebook can have only limited value for users; second, that it has only limited value for advertisers, because users won't click through. The third argument is that, in the long run, smaller, targeted networks will be more attractive, and a company like Ning can win by allowing many users to create many networks, and dominating the long tail niche networks.

On the first point, I disagree. I think users can and will deal effectively with aspects of their Facebook experience that cause its value for them to diminish. If you feel you have too many connections, or connections that lack value, you have the option to terminate any of those that aren't working. I've noticed lately that I see a lot of people leaving groups and dropping applications. Facebook is powerful - many people are going there, and they stick, because Mark Zuckerberg had the right idea when he built the system. He understood that people won't get sufficient value through their connection with friends and acquaintances- we can all manage those connections without joining a social network platform. Facebook works because it gives us many things to do and, via the minifeed, it shows us what our friends are doing. That's a complete realization of the principle of the social graph, and I have no doubt that Google et al are kicking themselves for failing to make something similar. It just seems so obvious, but that's hindsight.

The second point may be true. Facebook may not be as valuable a platform for serving ads as Google's multichannel system, or Yahoo's. I wouldn't make too many assumptions about that, though. Facebook is already working on its own more sophisticated ad system, and the company's made smart decisions so far. With clueful web companies, you can't judge tomorrow's viability by what's there today. (On the other hand, even smart companies screw up. Nobody's smart all the time.)

But users won't care whether Facebook is making millions or billions, as long as the system's up and working and providing them the tools they need.

That brings us to the third point, about smaller, targeted social networks created on systems like Ning. While I agree that "myriad small communities" will form, they could form on Facebook, just as they formed on Prodigy or AOL or the WELL. Facebook has good support for groups, and the many Facebook users are more likely to create groups there than on Ning, which has a couple of strikes against it: it's a whole new technology to learn and keep up with, and it's slow. Ning will probably have plenty of adherents, and I suspect it will be faster if it catches on, and investments appear to fund more servers. But I don't think Ning is the Facebook-killer.

Which is to say that I think Facebook and Ning are both viable, and there are many other web-based solutions that will find users and possibly, hopefully, become financially viable. They don't have to be the next Google, though for ad-supported systems, it's critical to reach a very large number of users with good click-through rates on ads, and those rate are better if the ads displayed are relevant to context. Google has succeeded by having massive pages serving targeted ads every day. Systems like Facebook and Ning are similarly trying to find ways to combine volume and relevance.

If you're a sustainability advocate working for a nonprofit, you may not care whether Facebook or Ning or the Web 2.0 site du jour is viable, but the success or failure of these systems can be relevant to your mission, if you have a web strategy or you're thinking to build more of a web presence. These systems can provide powerful solutions for organizing and communication, and you may find yourself using them more and more. To the extent that you develop communities within a system like Facebook, you want to know that the platform is stable and sustainable as it becomes increasingly mission-critical. The history of the web includes some pretty nasty shakeouts. In the early days of the web industry, content sites - online magazines - were the part of the first wave of commercial web sites, and many of those sites failed when they couldn't validate conversions from online ads.

I tend to favor Open Source solutions like Drupal, Joomla, and Wordpress, or perhaps the soon-to-be-Open-Source Movable Type, especially for mission-driven nonprofits. Our friends at One Northwest like to use Plone.

These are all content management systems – what I'd really like to see, and haven't yet, is a good Open Source approach to the social graph, and standards to make identity and social graph portable.

Photo: GustavoG's FlickrVerse social graph poster. Posted on Flickr by cobalt123 with a Creative Commons license (attribution-noncommercial-share/share alike).

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These are all content management systems – what I'd really like to see, and haven't yet, is a good Open Source approach to the social graph, and standards to make identity and social graph portable.

Do you really want to make the social graph portable, or just accessible from a variety of applications and environments? It seems that the moment you make the graph portable, it looses much of it's value because it's now your graph living in isolation from others. For example, if I could take all my facebook data to somewhere else, that would be sorta useful, but not really because now my friends in my graph can't interact with it.

Really, what you're looking for is a set of open interfaces that allow people to access their data from any environment. Sorta what OpenSocial from Google is doing.

That's not to say that portability isn't important. There are times when you may want to pick up and move for one reason or another, but the switching costs are pretty significant. Luis Villa has done some interesting thinking on what it takes for a service to allow you to move your data, may seeing his thoughts on Open Services would be a good start for that.

Posted by: Patrick Wagstrom on 28 Nov 07

OpenSocial has the ability to link these separate communities and complete the social graph. The fact that that there "niche" communities will add value and meaning part of the graph.

Posted by: Rahein on 28 Nov 07

Patrick, when I talk about portability, I mean that any user could (should?) have ownership of an aggregate graph of her connections, and the various attributes that any and all platforms add to the mix - or as many of those as can reasonably be included. All social platforms would be built with protocols for accepting relevant data. You see a fairly limited implementation of something like this as more platforms use Google and other APIs to give you the option to add "friends" from your address book.

A couple of shortcomings: Address books or contact lists are not as easy to use as they might be, and we tend to add different data sets to various web services for contact management. My gmail list and my Plaxo list are quite different, and many useres won't use either or both because they have issues with terms of service/privacy considerations.

Also, not everyone in my contact list or address book is my "friend," and there's no good way to index by degrees of connection.

What I'm looking for is a client that is stored locally (and possibly mirrored remotely, but the key is that I have local control decoupled from any specific application), that's robust enought to be a social network sysem as well as a contact manager. And for the portability I suggest, there would have to be standards and protocols for using the data. If we had those, then markets would leverage them, and multiple apps of the kind I've described might appear.

As anyone who's followed the attempt to create identity standards can attest, it's difficult to create a set of standards and protocols that everyone webwide will accept.

I probably should have said something about Berners-Lee's comments relating social graph to semantic web, but I haven't followed that closely enough to talk about it. (Which reminds me: we also need longer days, another solution to work on...)

Posted by: Jon Lebkowsky on 28 Nov 07



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