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he Network S work Service

Sean Parker

e New Era of f

Web 2.0 Summ October 22, 200

he Network S work Service

e New Era of f

hy companies like Fa Facebook, Twitter ay and Apple (but n Google) will not ermine the future of the internet ture

Companies th Harness ies that he power of ne r networks wi dominate the internet ate

COLLECTING DATA IS CTING LESS VALUAB THAN LUABLE CONNECTING PEOPLE CTING

FFECTS?

When the value of a produc o one user depe r depends on how many other user there are. r users

- Shapiro, Varian

ETWORKS S
Option Value e
Expected value of pote f potential connections between nodes

Action Network Va ork Value
Real value of active con ive connections between nodes

Switching Cost ost

Cost of switching netwo networks for any single user or group of users sers

HE POWER OF NETWOR ER
Network effects p ects produce winner-take-all ma -all markets The big get bigge bigger

METCALFE¶S LAW FE¶S

value increa

METCALFE¶S LAW FE¶S

value increa

METCALFE¶S LAW FE¶S

value increa

METCALFE¶S LAW FE¶S
Potential Value of N e Network 2 increases with n h

Size of Networ (n) etwork

OMPANY? ?

sic unit of value for a n or network company is the data it stores, it¶s the number of s, nnections it facilitates ates

eBay Craigslist

Communicatio atio n ketplaces Networks s
Facebook Twitter Skype LinkedIn

Games
World of Warcraft Zynga ForSquare

Platform

Apple iPho Faceboo

S. NETWORK SERVICES K SE
Information Servic Services Network Services rvices
Facebook, Twitter, Eba PayPal r, Ebay, Core value is facilitating a relationship ilitating between people or grou r groups

Google, Yahoo!, CNET, YouTube, MSN Core value is collecting and processing data ecting

‡ Craigs Craigslis t ‡ MySpa MySpac e ‡ AIM ‡ Ebay

HE BEST PRODUC DOESN¶T DUCT LWAYS WIN

BAY

istered Users (MM)

MONKEY COULD RUN THIS ULD USINESS´

SKYPE?

urchase Price in 2 e 2005: 75mm Registered tered $70mm Revenue nue

$2.6B

urchase Price 200 e 2009: 521mm Registered stered $740mm Annualize ualized evenue

?

HE FALL OF FRIENDSTE F
Social networks a orks are communication se tion services, they obey the laws of n s networks Friendster was no a fad as not The company faile due to ny failed difficulties scaling the caling infrastructure e

MYSPACE LET THIS T APPEN? 005

m users Facebook: 8mm us -100mm MySpace: 60-100m users

Systematic product failure roduct Technical limitation itations Facebook had a se d secure eachhead in colleg market college

Tactical Schools al Sch Enemy Schools
Baylor Columbia Stanford Southweste western Texas A&M s UTA TA

Facebook Sch Berkeley Baylor Facebook Sch Columbia Berkeley
Berkeley Cornell Columbia Cornell Dartmouth Harvard Dartmouth Stanford Harvard Yale Stanford Yale Yale

ATTLE FOR GERMANY R GER

ATTLE FOR GERMANY R GER

rch Index Volume

ERRING
Value of connections is super-linear, ctions value of datasets is l ets linear at best

Moving data is hard, moving people is harder Example: ebay¶s auc ¶s auction database Data portability is ea easily solved by converters and adap adapters.

OESN¶T OOGLE DOESN OWN S ETWORKS
IN INFORMATIO N S SERVICES
‡ AdWords ‡ Gmail ‡ Search ‡ Maps, etc.

TWORK RVICES

AdSense

Dodgeball(?)

Orkut

Google Talk(?), Wave(?)

LOSING THOUGHTS THOU

Over the next decade t aggregate value o ade the the emerging class of n s network companies w dominate the internet rnet

NEW economic value o the internet will no alue on be generated by search Google will continue to be an economic ue ts relative importance on powerhouse but its rela ecline the internet will decline

he Network S work Service
Sean Parker

e New Era of f

Web 2.0 Summ October 22, 200