Better Together: How Spotify and other companies are amplifying Facebook’s network effect

With its near 1 billion users, an upcoming IPO, and penetration into so many aspects of our Internet life, Facebook is a hot topic these days.  Some people are on the fence though about if it can have lasting success and question how big it can grow its revenue and profitability.  Those people that know me will tell you that I have been bullish on the future of Facebook for many reasons.  I want to use an example of a popular music service that shows the power of the social network and why it’s here to stay.

Spotify is a music streaming service that allows you to play endless amounts of tracks, save playlists, upload your own music, and access all that music from anywhere using any type of device.   For all of this you pay just $10 a month (they also has a free version with fewer capabilities).  Sounds pretty great right? Well, don’t be fooled, Spotify isn’t the only subscription based music service.  It might not even be the best in terms of what you get for your money.  Zune has the similar platform, costs the same amount per month, and they even allow you to download and keep, without restrictions, what you pay per month for the subscription (10 tracks).  In addition to Zune, there are other subscription services including Mog, Rhapsody, Slacker, Rdio, and Grooveshark.

But Spotify does something much better than the rest: social integration with Facebook.  You will notice instantly when using Spotify how connected it is to your network of friends.  On the right hand side is a streaming feed of what your friends are listening to with the ability to easily select and listen to that track as well.  On the left hand side is a navigation pane, and what is one of the first tabs you see?  People.  You can select any of your Facebook friends, see their playlists, and subscribe to those playlists, basically adding it to your account.  If you and a friend like similar music, you can create a collaborative playlist and discover songs together.  This social usability is so flawless that you sometimes wonder, “Why isn’t everything like this?”  And you better believe Spotify knows this is a key advantage to their service.  Since September 22, 2011, it is mandatory that all Spotify users have a Facebook account.

Now you may be wondering, “Is this an article about Spotify?  I thought you were going to tell me why Facebook is so great.”  Well it’s tough to answer that question, because it’s really about both Spotify and Facebook…together.  The sole strategy that Mark Zuckerberg and Facebook have focused on is making everything in life better by connecting it to your Friends through the Open Graph.  Spotify is just one example of that.  Another great example is the travel and review site TripAdvisor.  When connected to Facebook, the site will tell you if any of your friends have visited or reviewed different cities or places of interest when you make a search.  What better way to get travel advice then from friends who have already been?

So the big question is WHY are connected sites so important to Facebook’s success?  To explain this I want to describe one of the basic reasons for Facebook’s success, which is known as the network effect.  A network effect is “is the effect that one user of a good or service has on the value of that product to other people.” (http://en.wikipedia.org/wiki/Network_effect)  Essentially, Facebook is better when more people use it.  In fact, one of the reasons for Facebook’s early growth and popularity was that they waited until they had a critical mass of students at a particular college requesting Facebook before they went live on campus.  Facebook knew that people would only enjoy it if all their friends were using it as well.    The fact that Facebook now has close to a billion users will make it very hard for those users to switch to a competing service.  This is one of the reasons why Google+ has yet to grow in popularity despite Google’s massive dominance in search.  Even if you like the functionality and service of Google+ better, what fun is it to share with 10% of your network?  With all that said, the naysayers would argue, “MySpace was just as popular at one time, and before that it was AOL , and look at those today.  What makes Facebook any different?”  This is where the Open Graph comes into play.

As mentioned above, the concept of the Open Graph is to bring Facebook to all types of experiences on the web.  This strategy was incredibly smart and extremely powerful.  As people connect to more and more services using Facebook, the network effect of Facebook can be leveraged by these services, like Spotify.  Facebook is, in essence, giving away this powerful network effect they have built up over many years.  Why would they do that?  The reason is because the network effect gets amplified when expanded outside of the facebook.com boundaries.  Every time you “Connect” to a service through Facebook, the network essentially doubles in effectiveness.  If you were to leave Facebook, you would not only be leaving a set of friends, but rich experiences with those friends all across the web. Once you become accustomed to interacting with your Facebook friends on games, reading articles, planning trips, shopping, etc., it’s hard to experience those things without them.  Just like the actual users, services that connect through Facebook will have little incentive to disconnect as their user base continues to grow and engagement goes up.  Furthermore, many more services will start architecting their site completely around Facebook’s platform, similar to Spotify, which would mean large switching costs if they were to ditch Facebook.   By opening their platform across the web, Facebook significantly solidified their future sustainability.

At the end of the day, people can say all they want about Facebook being a fad and compare it to MySpace.  But those people don’t realize that Facebook has become much more than a place to “Poke” the girl sitting next to you in your Biology 101 class.  It’s connecting you to your friends in every corner of the web.  And it’s a bit ironic that you probably are reading this post because you found it Facebook.

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