Thursday, February 19, 2004

What if Social Networks could really change the world?

see edited version at Media Guardian, February 23, 2004

The urge to merge is back in fashion – hostile or otherwise. After not quite five years of famine, Wall Street and the Square Mile are gearing up for the mouth-watering prospect of building bigger and bigger networks in sectors as diverse as the media (Disney & Comcast), financial services (Bank One & JP Morgan Chase), software (Oracle & Peoplesoft) and telecommunications sectors (Vodafone & AT&T Wireless).

The big networks have come out of hiding and rather than changing their ways, they have continued to pursue a top-down approach to creating scale and distribution leverage, whether by pre-emptive strike or by auction. But in the interim, a counterforce has been unleashed and the power of social networks like eBay, Linux, Betfair and Kazaa have been building momentum and after some fits and starts, some lawsuits and failed assassinations, they are now starting to be aired during prime-time, gaining credibility and in some cases creating spectacular and lasting value.

Given the fact that the mad-cap thought experiments of Gordon Moore and Bob Metcalfe - two 60s scientists turned multi-millionaires - gave birth to the fundamental laws driving this revolution, we may well be forgiven for letting it all pass us by. But when you look at the effect the coming together of Moore & Metcalfe are having forty years later as the network joins the chip in Intel’s Centrino and its $300m global marketing campaign, you start to wonder what they might have wrought.

Most people have become familiar with Moore’s Law – roughly every few years the number of transistors doubles on an integrated circuit, creating more and more computational power at lower and lower costs. This is the law that gave us Intel, Microsoft and Dell. We almost don’t blink anymore when we see £400 computers advertised in every newspaper and we have come to expect, never mind accept, the constant improvements we experience in function, speed and miniaturization. In fact the underlying economics of Moore’s Law have helped to support the broadcast network logic of the big getting bigger.

Perhaps a less familiar concept in our commercial thinking but possibly more relevant to our networked world is Metcalfe’s Law, which explains that “the power or the value of a network increases exponentially in proportion to the number of nodes on the network”. Metcalfe’s invention of Ethernet was a thought powerful enough to help drive the growth of Cisco, the Web and from it we have derived the basis for Wi-Fi. But perhaps the real underlying power of Metcalfe’s Law is not so much in analyzing the quantity of connections, which are certainly important and now vast, but rather in the quality of connections, which in a world saturated by information is becoming the key point.

Ten years on we accept that we live within Metcalfe’s world. We have internalized the notion that the web has connected us to information and services we’ve never been able to access before so cost-effectively. We’ve even started to internalize the notion that the web has connected us to people we’ve never been able to (or in many cases never wanted to be able to) access before. It wasn’t much further back than 1994 that there was still a “What’s Cool” page at Netscape and Yahoo! was a back-room project with a few thousands web links started by two brilliant Stanford engineering post-grads. Less than ten years ago the Electronic Telegraph launched and Demon had less than 10,000 subscribers – now over 45% of the UK regularly uses the Web and most people would say “What’s Demon? Who was Netscape?” and “Wasn’t Yahoo! started by some guys in Hollywood?"

But this is a world, which for all its booms and all its busts, has just kept growing and growing and growing, just like Gordon & Bob said it would. Although as the connections have become vaster and more various, with Google indexing over 6bn web pages and Microsoft managing more than 200m people’s sign-in credentials through Passport, we are now facing a crisis in the quantity of connectivity and it is in the quality of connections where social networks excel and where they generate their value.

The web has given birth to some real winners who have excelled at leveraging Moore’s Law to organize, aggregate and cost-effectively manage the torrent of information flow from multiple sources to deliver valuable services. Businesses like Yahoo!, Amazon, Getty Images and Expedia have combined superb technology, skilled employees and customer focus to harness resources and information to present them in a way which add-value to all the nodes in their supplier networks. In this way they are worthy heirs to the News Corps, Wal-Marts and Sabres but it is actually services like eBay which are built around the model of social, rather than supplier networks, which have the potential to be truly disruptive and earth-shattering.

EBay does something no other network has done before: it treats the social network as the supply-chain and by building systems of communications and reputation management into the fabric of the network, manages to turn a network of individuals into organized, structured and wildly economically-viable marketplaces. The same can be said at an emergent level about open-source knowledge projects like the DMOZ’s, once open (now owned by AOL) web directory, Wikipedia’s encyclopedia or even about the thrust of IBM and HP into the shared-resources of grid computing.

In fact when you can connect to anyone or anything, as well as automatically leverage the capacity, experience, expertise, information and merchandise within their networks, you have the potential to change the modus operandi both economically and socially. This is the secret sauce behind open source developments like Apache web servers, Linux operating systems and now MySQL databases. Apache is already the most popular web server on the Internet and now through the combined power of a low-cost approach and well developed social networks, all three threaten to unseat or at least seriously disrupt their traditional alternatives.

Think about the time, infrastructure and regulatory expense of creating a global telecommunications platform – should you be Vodafone and pay $40bn to build out a global footprint or should you be Skype which offers, perfect-quality phone calls to anyone with an Internet connection anywhere in the world? Skype uses the same social networking architecture which brought the music companies to their knees with Napster and Kazaa, until they came to their senses on digital distribution with iTunes and Rhapsody. Skype which can deliver phone service at the fraction of the cost of any traditional competitor, but on a network which has open standards and uses open-source software and systems, will no doubt have a similar impact on the phone companies.

In less than six months Skype has been downloaded over 7m times and it spreads through social networks like Napster and EBay. Last night, we spoke to our family network in South Africa for 15 minutes for nothing, there were four of us on the call, while at the same time Skype’s network was effortlessly supporting over 115,000 other people talking to each other in over 200 other countries.

Social networks are changing the fundamentals of network economics and it’s not just going to end with the software, entertainment and telecommunications sectors. Slowly they are starting to change the way we experience news – now over 5m people read weblogs everyday – and perhaps even more critically the way we engage with our leaders. Think about the time, expense and lack of spontaneity of organizing a political campaign and then take at look at which in less than a year offers over 1m people meeting in 612 cities, in 51 countries, the chance to get together at venues of their choice with people they’ve never met before who share their interest. Interestingly the most popular Meetups are political with Dean, Clark and Kerry campaigns all successfully using Meetup as a platform to canvas support and get out the vote.

So what do you do next time someone comes around trying to sell you a network; hire a bank, appoint some lawyers and make a $30bn offer? Well you could do, or you could rather go onto eBay, Meetup or Skype and see if someone else can offer you a cheaper version. In fact I’m sure by next year most global banks and law firms will be using Skype to set up and manage free conference calls with their clients to do the deals. Either way testing the waters will expand your social circle and as result you’ll probably learn something new along the way and as an added bonus we’ll all be adding another few laughter-lines to Gordon & Bob – if not a few more pennies to their progeny.