Do Network Effects Span Geographies?

Three years ago most western european countries had a local social network that was the most popular social net in the country. Today Facebook is dominant in most of western europe and those local social nets have largely been bypassed.

It would seem that Facebook leveraged the size of its network (approaching 500mm people worldwide) to beat its competition in social networking. But what's interesting to me about that is that it also means that it leveraged a network that was larger out of country to beat an incumbent who initially was larger in country.

For the sake of this argument, I am assuming network size and network effects was the cause of Facebook's success internationally against local competitors. It could be that it was not network, but instead features that won the market for Facebook. Certainly it was some of both.

I come to this "argument" with a deep respect for the power of networks, particularly online, and so I believe that in fact Facebook was able to leverage the size of its out of market network to compete in market against a local incumbent who had a stronger in market network.

And why exactly would that work? Well first of all, many people have social networks that span geographies. And those people tend to be influencers who are important in the value of an overall social graph. I think it is also true that in many parts of the world, big american brands are powerful in local markets. And so its probably also true that there is an allure of being part of a big american social network. I've been told that there are only four countries that are mostly impenetrable for a US internet company; russia, china, japan, and korea. We will see if that is true in Facebook's case.

I was thinking about this yesterday as I was making my way around Paris, checking in on Foursquare. In every place I went to in Paris, there was an existing mayor and plenty of tips. But it was rare to check into a place and find someone else checked in as well. By contrast in NYC, I rarely check in these days without finding at least one other person checked in.

In talking to some local parisian web entrepreneurs, I heard about a local Parisian company called Tellmewhere that has 500,000 users, mostly french. Read Write Web has a good post up about Tellmewhere right now. So maybe the reason I found the usage of Foursquare in Paris to be light compared to NYC is the presence of a strong local competitor.

And thus my question that started this post. Do network effects span geographies? Does the fact that Foursquare is approaching 1mm users worldwide make a difference in Paris or will Tellmewhere, with 500k users who are mostly here, continue to dominate locally?

If we can use Facebook as a guide, it seems eventually the largest network wins. But can we use Facebook as a guide and is that universally true on the web? Let the discussion begin.

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Comments (Archived):

  1. Carl Rahn Griffith

    We should never underestimate the significance of local cultures and the impact that may have regarding the adoption of (eg) an application.Ford can create a global car and Hollywood can create a global movie, with pretty much generic widespread adoption spanning many cultures, but apps such as Foursquare, etc, touch many more cultural nuances – we’re not consumers in such scenarios, we are users/participants and also many of the benefit (such as they are) of the application are predicated on acts of altruism and the participants being of a collaborative, slightly extrovert nature, I’d suggest.Facebook seems pretty successful globally because it does fulfill a simple function – as a glorified Rolodex – for many people. With other new era web apps I don’t believe it’s quite so simple as the benefits have more nuances and subtleties and thus will hit/miss to varying degrees, in different cultures.I’ve been lucky enough to have lived and worked in quite a variety of places around the world and the variety of cultures and the cultural nuances never ceases to amaze and intrigue me. Look at London and Paris, just a short train ride apart nowadays thanks to the superb achievement that is the Channel Tunnel, yet in many respects a huge distance apart, culturally, socially, etc. Fascinating stuff. Europe especially is so cool and wonderfully bewildering in this respect.Anyway, as shown in this example, the French love – and will prefer to buy/use – French software/products. Good grief, they even choose to buy French cars! Analyze that, as they say …But, it’s not really fair for an Englishman to comment on the vagaries of the French – and vice versa … πŸ˜‰

    1. RichardF

      That’s why I love France as a country. The people still have huge pride in their country and their culture. France are still producing cars and have control over that element of their economy which is more than can be said for the UK. We’ve allowed too many overseas companies to take over our best brands and then take the manufacturing elsewhere. Look at Cadbury, Kraft now own them – they’ve taken our cholocate – it’s a national disaster!!Anyway what’s wrong with wrong with the Deux Chevaux? πŸ™‚

      1. Carl Rahn Griffith

        The 2CV is one of my favourite cars of all time, as is the original DS. I just find the modern day French cars to be tragically bland in design terms. Only their mother could love them, as it were! πŸ˜‰

        1. RichardF

          and every kid in Britain aged 17-21!

        2. markslater

          thats not a car!

    2. markslater

      excellent Carl.

    3. MattCope

      This was my first thought – what about the local nuances that may be lost on foreign entrants?But then my next thought was, how “locked up” is that information? If they’re smart about it, foreign entrants can absolutely find the right consultants to fine-tune the offering to local tastes.Am I off base, or can’t one – to an extent – buy that info?

      1. ShanaC

        Not always- it may break from the global brand. Starbucks in Israel is my favorite example. Coffee is a big deal there, but so is the meal that goes with it. Starbucks never managed to get the “meal” concept.

        1. MattCope

          Interesting – I wonder if they didn’t get it…or if they got it but decided they weren’t in the meal business.

          1. ShanaC

            I have no idea. I do know that they tried, and people felt the coffee was a little ehh, and complained about the lack of food. Starbucks closed the test shops, and left the local coffee chain market.Oddly, the big chain there, Aroma, is penetrating the US market. I guess people like sandwichs sometime with coffee…

    4. ShanaC

      You see a lot of this particular effect with clothing. A lot of companies are afraid to not have “made in XXXX” or is styled in a certain fashion….

  2. mandar1000

    Thank You for providing useful information on facebook network

  3. Ryan

    Interesting post. My first thoughts are that it depends if the user gains by joining a more international service. To use the Korea market as an example, Koreans don’t think they gain much by using Google because the local search leader, Naver, is thoroughly catered to their tastes and filled with localized Korean content. They gain a better search at Google, but lose all of the local Korean content on Naver. They clearly value the content more. Only recently is Google starting to Naverize their search page (the antithesis of Google’s simple interface) with Korean content.On the flip side, Twitter is starting to get really popular in Korea, I think because there is a lot of value added for users by being able to access that content created by people from all over the world.

  4. Akshay Mishra

    Nice points about features and the size of a network being contributing factors. Two points from my side:1. Facebook started out as a network exclusively for university students and built up a good following based on its “news-feed” feature which always had something interesting for the people to spend time on Facebook. That initial “seed” network created by this was geography-agnostic – universities being pretty much a global pehnomenon – and hence “word-of-mouth” was good even when the network expanded into the rest of the society.2. Regarding Foursquare and its French alternative – again as far as networks go – certain people act as “hubs” within a network – well-connected, high-communication-volume people. If these people join a network, the netwrok grows exponentially (because then their friends join and their friends join and so on…). So, say if you got a French “hub”-like person (say, some hot-shot popular person in a university/company or maybe someone famous – Audrey Tautou?) onto Foursquare, the network size will increase.

  5. RichardF

    France are a bit of an exception – I don’t see Foursquare making inroads over there unless they get on the ground locally and rebrand to “Quatre Place” (forgive me if the translation is inaccurate)I think networks do span geographies, particularly those that are culturally aligned. So North Western Europe and the USA are pretty well aligned. In terms of market penetration Facebook’s top users are USA followed by the UK and whilst three and four are Indonesia and Turkey I would argue that both those countries are actually quite well aligned with the USA and Western Europe.

    1. Akshay Mishra

      I don’t know about Turkey – but Indonesia is quite different from Western Europe. I think the main reason Indonesia adopted Facebook was that it’s closest developed neighbour – Singapore – which indeed has a western culture – is largely on Facebook (and is extremely tech-savvy). So what Singapore does in that region, Malaysia and Indonesia pretty much adopt it as well as there are a lot of people from these countries who work in Singapore and go back to home during holidays (or even during the evening after work). Hence, the usage growth in Indonesia, I think.

      1. Akshay Mishra

        …which makes me realize this is again an example of a “hub”-based proliferation. So, although Singapore is smaller (population-wise) than Indonesia, it has been able to influence network adoption (in culturally different areas) in a big way as it is a “hub” in that region.

      2. awaldstein

        I ran some Facebook growth numbers in January in prep for a post and speech that might be of interest.-Turkey, #3, is growing at 128% annually and will overtake the UK at #2 within 6 months.-Indonesia, formerly #7 is now in the #4 spot and growing at a rate of 187%. It is larger than France, Canada and Italy.-The Philippines, formerly at the bottom in 10th place is now #8, passing Spain and Australia, growing at an annual rate of 152%.Complete numbers http://bit.ly/a27HXf.

        1. markslater

          i spend a lot of time in Indo (been there twice this year already) – their future is on the phone. i travel through some of the poorer neighborhoods and in the factories – they live on their mobiles. there is a huge opportunity for SMS based applications and micro marketplaces. i just dont see them on PC’s – their computing devices are their phones.

          1. Akshay Mishra

            Couldn’t agree more – but that is the present state of things. As smartphones and GPRS/3G access get cheaper, you’d see a big shift to proper web-apps in maybe 2-2.5 years (allowing state maintenance on the client-side rather than having a DB on the server maintain states – which would be the case for SMS-based apps – in effect allowing for richer applications) . But you’re right, SMS based apps are the best way to provide a service to the masses presently in Indonesia (it’s the same case with India, too).

          2. markslater

            and they are very sophisticated texters.

          3. Akshay Mishra

            I know just what you mean! Have been at the receiving end of an Indonesian text. πŸ™‚

          4. awaldstein

            You are right on Mark!I work a lot on the Facebook platform for clients and the genius of the service is that it is in the cloud and lives in the browser. My original post on this way back when. http://bit.ly/2UEYuF When you look at the growth numbers they are in countries where there is minimal PC per capita numbers. Folks are in either hanging out in Internet Cafes or moreso, as you state, on their phones. And this will continue to push growth. For example in Turkey, FB numbers are focused in Istanbul which is natural. But if you buy a phone or a netbook for your family somewhere else to be able to send photos, videos, etc.. it will explode in growth because there is no platform or techno cost barrier.Powerful stuff.

      3. Andre Siregar

        Akshay, no self-respecting Indonesian or Malaysian would look at Singapore as a trend setter. The high Facebook adoption is simply because it is better than Friendster. Indonesians are also Very receptive towards social network as can be seen by the also-high Twitter adoption. Finally, although internet penetration is low, smart phone adoption is relatively high. All of those make a high user base for Facebook and Twitter

        1. Akshay Mishra

          @Andre: I agree – there are huge cultural issues involved. But speaking from a product introduction perspective, Singapore leads the way in that region. Even when Friendster arrived, it was Singapore which adopted it first and then it proliferated throughout the region. I do not intend to say, in any way whatsoever, that these countries “follow” Singapore – they don’t – they have their own cultural identities.But from a purely technical standpoint, Singapore is advanced in terms of its communication infrastructure compared to both Malaysia and Indonesia. So when a global trend arrives, it arrives in Singapore first – and then people throughout the region adopt it. This has been my experience – yours might be different.This is sort of a follow-up on Fred’s post – for instance – 4S is not a product with a country-identity stamped on it – it is not marketed as a social network “for NYC, Stanford”/wherever. Similarly, as long as a product does NOT have an explicit cultural brand stamped on it (ie a social-network specifically for Bahasa or Malay-speaking people), there is no reason why it shouldn’t be adopted successfully elsewhere (ie there is no reason why Paris shouldn’t be as active on 4S – and perhaps that’s a nut that Fred is trying to crack – maybe localization, tie-ups, language are options?). The key is to find a point for penetration – which Singapore is for the SE Asia market. I am not sure if one can find a similar point for Europe as a whole.

  6. kidmercury

    by this rationale google beats everyone and we get to one world internet.pfft. not going to happen.it is worth noting that the relevance of size needs some clarification. yes, facebook has 400 million+ users. but how many are active? how many are monetizable? to what extent can facebook do smart pricing (getting most revenue per customer…i.e. $1 from some poor person, a million from some rich person).IMHO local will win for depth of customer wallet. in the end, a thousand locals will beat the one juggernaut. david will beat goliath.the more important question IMHO is how big can communities get before they become less effective at creating trust — any by extension, less effective at maximizing share of wallet.

    1. Mark Essel

      Check my comment about the natural “web” cycle. Lots of small guys not talking, big guy eats them, web mimicks and eats big guyimagine search distributed and a native part of HTML

    2. markslater

      correct! – atomization and localization win out.

  7. Harry DeMott

    I love Paris in the springtime!I do think there is always some sort of move toward the largest or most distributed network, for the simple reason that it becomes the medium of exchange so to speak.When I have traveled abroad with my kids – and they have met other kids – they tend to exchange Facebook info – as it is an easy way to stay in touch. I think a lot of growth has happened this way to begin with – and then grew from there. The early social network adopters would likely have gravitated to the biggest or fastest growing social network – and then moved their friends onto that platform through friending (and as Charlie says below – a fear of turning down your friends)Something like Foursquare doesn’t really have any cross border network effects – but it almost by definition a local place based network – so whether I am on foursquare or the French equivalent is irrelevant to me – just a question of who gets there first.

  8. LIAD

    network effects are network effects. i dont believe they are beholden to geographies or timezones etc.there are some factors which can accelerate/decelerate them such as language barriers, feature-set, branding etc – but in the long-term i reckon they win out 9 times out of 10.—–i’m not sure about – “there is probably an allure of being part of a big american social network” – for most europeans, in the first instance that’s probably more of a turn-off than turn-on

    1. fredwilson

      Why have McDonald’s and Starbucks done so well in Paris? Its kind ofshocking to me how many there are

      1. LIAD

        parisians obviously have bad taste πŸ™‚ -we could deduce that from their dress sense alone.

        1. Carl Rahn Griffith

          Don’t even mention their ablution habits πŸ˜‰

      2. Carl Rahn Griffith

        There was a huge resistance initially, Fred – from ‘the old guard’ as it were.Don’t know if you recall the major opposition there also was to Disneyworld, Paris? USA ‘culture’ corrupting the pure French culture, as it were – so the argument went, at the time …In extreme scenarios the French have their own ‘way’ to let their feelings known ….http://www.nytimes.com/1990

      3. awaldstein

        There is a Starbucks on every corner in London. Just got back…truly shocking (and hard to find a decent cup of coffee!)

          1. awaldstein

            Thnx.Did find some spots in a new section of London (to me), south of the Tower Bridge along the river. Cool spot full of maritime London history and architecture. And good coffee!

          2. RichardF

            South Bank has really developed, glad you found it

          3. awaldstein

            Been to London many times but this was a new discovery. Great fun.

          4. Carl Rahn Griffith

            I know exactly where you mean – a great ‘hidden’ part of London. A real sense of history around that area. Fantastically atmospheric late at night, on a foggy winter’s night. It’s a real time-warp.

          5. awaldstein

            CarlMy understanding is that this is the furthest up river deep water spot that the large cargo ships could go. The warehouses and coves where developed to roll the barrels off the ships and store. Now condos, alleys, restaurants and more.Real sense of commerce. I watch the tugs from my window on the Hudson and this stuff just speaks to me.

      4. kidmercury

        dollar hegemony.

      5. markslater

        soft power.i drive through tangerang in jakarta and see subway’s everywhere. them along with Amway. its modern day colonialism just replacing red coats with brands.

      6. andyswan

        Because they offer great value and consistency.

  9. Rob K

    Network effects do span geography for me- I have a number of FB and LinkedIn connections in non-US countries. But it’s hard for me to imagine that being the case with inherently local services like Foursquare. The fact that there are lots of Foursquare users in New York doesn’t help me in Boston, where it is much less pervasive.

    1. Mark Essel

      For foursquare (or any service) to get a foothold locally they need something besides location to tie users together. Brand opt in & discounts to those brands may do it? People on the ground starting local user bases through meetups?

      1. Rob K

        yes I agree. All I am saying is that, unlike Facebook and LinkedIn, my usage of Foursquare is more determined by who I know locally that uses it. My friends across the country that use it don’t sway me.

        1. andyswan

          I don’t want to put words in your mouth Rob….but I think you might have meant to say “my friends across the country that use it annoy me.” πŸ™‚

          1. Rob K

            I’m not following any of their activity in Foursquare (it would annoy me, too much noise).

          2. andyswan

            Need to write script to block em on twitter too πŸ™‚

  10. Mark Essel

    Short version: lots of different providers run local networks but don’t communicate to each other. A bigger network siphons users away. The Internet mimicks the bigger company and distribrutes it’s function into the new standard.you pointed out that the influencers spanned geographies and were likely connected on other networks, so it was natural for people to connect over Facebook. How Facebook swallowed the web is a tale of the Internet. Big networks are part of it’s history. They perform the one thing they need to best, interoperability and sharing within the new subnet.Over time folks outside the network recreate the communication necessary and eventually users no longer need to stay on a particular platform. Competition breaks the monopoly by commoditizing it’s primary function.So whatever geoloc that talks over open standards to other geolocation apps first will be the technology standard of the web. In the short term one business could “win the web” but it’s only temporary, until it’s core features are duplicated outside, and become part of the web standard.Once networks are fully read write (twitter’s not there yet) it can communicate natively with the rest of the net and becomes part of it. The Internet is inclusive, only completely isolated systems resist incorporation.

    1. kidmercury

      i sort of agree with what you are saying, but i think there are some key caveats. for instance, fb will resist incorporation into the web, and in some ways they already are. crapple is the absolute worst here. dave winer is always complaining about how google is trying to force usage of atom instead of rss….i think he has many valid points in his argument. that’s why i tend to agree with stallman who says that SaaS leads to companies trying to become standards and owning the standard. i think twitter is on this trajectory. it will be interesting to see if/when they start becoming more closed (especially as they begin to monetize), as well as when more threatening micromessaging competitors emerge.i also think a case can be made that all these major players should resist incorporation, and form their own world, like crapple does. but, i think this strategy can only work on a niche level. crapple had the right idea when they were focusing on education and gamers. now they just focus on everyone, which i think will leave them vulnerable to niche competitors as ecosystems develop.

      1. Carl Rahn Griffith

        Facebook – if it is to be more than just a glorified Rolodex – is largely predicated on being a destination page and an environment one stays within for a period of time; and at a ‘proper’ PC, ideally, because of the sheer scale of real-estate it requires.That’s a big ask nowadays, in an age of widgets, a variety of ever-slicker/discreet Twitter clients, the cool Foursquare mobile app, etc.I still believe Twitter is a bigger game-changer (paradigm shift, if you prefer to be traditional!) than Facebook.Roughly some +90% of my Facebook ‘activity’ is in fact simply my Twitter posts automatically being fed to my Facebook account. I see this pattern in many of my friends and associates, also.

        1. kidmercury

          I agree with what you are saying, though I think facebook has a few tricks up its sleeve — namely facebook connect and facebook credits, which in conjunction will allow for all sorts of off site interactions which fb can monetize. Problem is that govt will wage war on facebook credits if fb pursues this trajectory because it threatens currencies of nation-states and the central banking cartel that operates them.

          1. Carl Rahn Griffith

            I am not au fait with Facebook’s ‘credits’ plans, will check into it – thanks as ever for the heads-up, Kid’!The new PayPal? Or more likely to go the way of throwing sheep/zombie bites, that’s the question, I guess ….? πŸ˜‰

          2. fredwilson

            credits is just for virtual goods so its no paypal replacement any time soon

          3. kidmercury

            true but as you know boss, disruptive models get their start bytargeting markets incumbents cannot/will not reach……but noworries, the banking cartel will stop facebook credits before it getsanywhere near there (or more likely, facebook will stop themselvesbefore pursuing that route). IMHO the proper model for how virtualcurrencies disrupt “real” currencies will be so distributed thatincumbent central banks/governments have trouble attacking them.

        2. ShanaC

          There are elements of that happening- it still is a social hangout network, but I see the fact that it does drive link traffic in its own weird way because of that very social element. Early signs of it, but it does…

  11. Oo Nwoye - @OoTheNigerian

    I believe scale matters. Foursquare is still too small to dislodge foreign competitors and be the default location gamer there is a tipping point yet to be reached. Remember brightkite has/had for more users than 4sq but is far from being the leader today.I cannot remember the article that analyzed the wisdom of Google purchasing AOL search for a billion (although they has such a small market share) which gave it the little bush it required to ‘tip’ and become the dominant force in search.I think to win in the foreign market, it would be required to build and support a network for that market. How many languages does 4sq support? I think language helped FB a lot.

  12. awaldstein

    Fred, great discussion.I think by nature Foursquare is local and requires density and Facebook is global and broad. And that globalization is part of its allure and value and impetus for growth.Spent some time in Europe recently talking to large brands about moving onto Facebook fan pages. The global nature of the platform was the big plus because while cultures are unique, businesses (and friendships) are global and the ability to unite people, workforces and fans on one flat ubiquitous platform is a huge plus.For background, this post shows user and growth numbers for the top 10 Facebook countries over a period of time http://bit.ly/a27HXf.

    1. Andre Siregar

      “I think by nature Foursquare is local and requires density and Facebook is global and broad. And that globalization is part of its allure and value and impetus for growth.”I think this is true. Location-based social networks have a different nature. Foursquare is more valuable if my online friends are physically nearby. I wouldn’t care if Foursquare is a small startup as long as my local friends are there. On the other hand, it is its global reach that makes Facebook valuable to me

      1. awaldstein

        We agree.Facebook flattens the world into a global social communications platform; Foursquare deepens and enriches local and enables me to have various ‘local’ spots with friends globally.

        1. markslater

          but show me value symmetry in foursquare? or for that matter in twitter? – to me the fact that twitter is so open allows for the company to continue to dig for this value symmetry which will in turn lead to an enduring business model (pretty good move actually). The real question is whether they are participants in the model, or merely facilitators of someone else’s. right now, followers or badges are blurring agents to value asymetry. You contribute a data instance, what actual value do you get back?to me the current crop of trendy web apps distort the notion of true shared economic value.

          1. fredwilson

            i’ve left this reply before on roughly the same commentwhen you checkin to your favorite coffee shop and get a free espresso,that’s value

          2. awaldstein

            Value is the expresso and the friend connection.

          3. William Mougayar

            – That’s value Fred, yes,- but I think there’s more that can be expected in that department. It strikes me that Tellmewhere is focusing on deriving more value from the check-ins by “learning about your preferences and comparing them with those of people like you”.- We need both a) a globally comprehensive network (I do get chuckles seeing you checking into my favorites restaurants in Paris while I’m in Toronto checking into Startbucks), b) a bit more analysis/derived value that’s deeper than perks & promotions. The Europeans tend to analyze things further than the US culture which is more easy going at trying things and seeing value later.Long story short: that segment will see some M&A that will reshape the map of location-based. Someone will buy someone else and get bigger than the others. Right now, it’s a horses race, with various degrees of market awareness, adoption metrics & features/value advantages.Even with Facebook being as large as it is, I sometimes scratch my head as to what value I’m getting from it.

          4. fredwilson

            i also like being able to run the foursquare app and see all the tips in mylocal geographydid that yesterday in the marais and was blown away

          5. William Mougayar

            Tips is a strong feature on FS, and I like it. I also like the direct linkage to the business’ twitter account. But I wished we could filter the Tips by some parameter- be it social authority or other.

          6. Joe Siewert

            Maybe a ranking system could be added to tips (like/dislike) so that the best tips in a city bubble up to the top (digg for 4SQ). Would be great when you come into a new city to open 4SQ and be able to see what people think are the top 10 (or 50, 100, so on) things to do.

          7. William Mougayar

            Yes, and I’m thinking by social graph slice or real expertise also. I, personally value comments from real experts on a topic (e.g. restaurants, art, wine, shopping) a lot more seriously than from non-experts.

          8. William Mougayar

            πŸ™‚ Looks like you were doing market research for 4SQ…

          9. markslater

            ok – fair enough fred – i know i have been debating this now for a while here. (trying to advance my thinking through arguing ;)here is where i am.for me – currated discovery is quickly becoming commoditized. I know my town, i know the restaurants, i know my circle of friends, what they are doing or where they are largely. I really don’t need more tools to discover stuff – anyway, if i’m looking i will default to google. Add reviews in there while we are at it.Realtime discovery however is a brand new animal – because it takes the notion of search and completely flips it on its head. if i want to discover or search for something there is no reason that the response cannot be in the form of realtime instances from interested audiences of merchants. If i say i want to do something, why cant i be matched with actual merchants who can respond to my Request for information – see this is not curration of coupons, or reviews – this is real actual merchants having an opportunity to respond to my instance – thats live search in a way – not indexing or crawling, or curation.this is new type of marketplace of sorts – once that happens quickly – involves very small pieces of data and has thick (shared) value between merchant and consumer. ofcourse this can all be stored and mined and shared but that in so many ways was yesterdays approach to discovery.

          10. andyswan

            It’s a good point mark. For me, foursquare is currently more noise than signal. I’d probably love it in a more “pedestrian” city.Twitter’s value return does come from other users in the form of @replies…or the ultimate ego stroke, the RT. It’s not enough long term….but I wouldn’t bet against them figuring it out.

          11. markslater

            i agree – and staying OPEN while doing this is a very smart move.

          12. awaldstein

            Hmm.. not certain I agree, If I understand.For the local app, like 4Square, its space centric and the economic model is logical being merchant based.

        2. Joe Siewert

          This is an important distinction. Facebook and foursquare are both social networks, but are connecting people in different ways. FB = broad/global, 4SQ = local.

          1. awaldstein

            Agreed.

      2. fredwilson

        that seems to be the consensus in this thread but its not what i experiencei have friends in many cities; NYC, Boston, San Fran, LA, Seattle, London,Paris, Berlin, Moscow, etcand i enjoy seeing where they checkin and i really enjoy being connected tothem when i arrive in their city

        1. awaldstein

          Unless i misundertand, many are saying that Facebook is a global real-time social community and FourSquare is your individualize local instance in many places.And actually they could easily be parts of the same system.

          1. markslater

            and i’m saying that i’d rather have the entire discusssion (social networking etc) around a realtime discussion with an audience of interested merchants – responding to my indication of interest.

          2. awaldstein

            got it.

        2. Charles Birnbaum

          I think that feeling connected to friends in other cities, particularly ones where you used to live yourself, is one of the subtle yet key utilities of foursquare.Many who don’t “get” the service yet are not having this experience. They will once the foursquare social graph continues to expand rapidly in the coming months. Including across borders…

          1. fredwilson

            i think you are right

  13. Laurent Boncenne

    I had never heard of tellmewhere.com (dismoioΓΊ in french) before I went to a twitter “meetup” here in Paris…imho, a lot of US business ideas could be used to target a smaller market before the US guys starts to scale.In the case of Foursquare, or gowalla for that matter, location networks is something that needs to be tied with localization of such app. (you can keep the foursquare name instead of translating it into french tho)It will be interesting to see how these apps scale globally.

  14. csertoglu

    Fred, even though you start out immediately with the cavet regarding the assumption you’re making on the topic, the discounting of product strength, i think , at least in the case of Facebook, the fact that FB was truly a technology company made a huge difference. The smoothness of the FB used experience was remarkable early on. And once the platform launched, it caused a giant leap forward in the face of competition .The case in Turkey was largely the complacence of the local social networking leader, early on. But in the long run, due to the reason above, I think FB would have won anyway.I also do think that local network effect is just as strong as global network effect. GittiGidiyor, an eBay-like ecommerce platform dominates Turkey and would not at all be effected by a move by ebay or Naspers locally. We saw the same with Kariyer.net, the recruitment leader, with its continued dominance of Monster.com locally. And these two are businesses enjoying the network effect.Great discussion, though. Thanks for bringing it up.

    1. Peter Van Dijck

      I agree, I don’t think it’s just network effects, it’s also strength of the product, and the amount of free PR and brand equitey that they got from being the “leader”. Everyone wants to join the leader.As for the product: Facebook was just better than all these local competitors. Significantly faster too – and speed is crucial.

      1. awaldstein

        ‘Legend’ has it that Facebook in Europe reached out and hired network stars in Istanbul and other spots to prime the pump. That plus a great product and the need for a free social communications system put adoption in high gear.

  15. markslater

    i think you are looking at this wrong. for me it comes down to value symmetry. What i mean by that is – when i contribute a data instance to a service – do i get equal “value” back? is it a win-win situation? When i contribute to facebook, the perceived ‘value’ that is returned to me is negligible (as opposed to tangible). Too many of these applications rely on a consumer contribution of data and don’t return any real tangible value.For me, the next real wave of innovation in these apps will be where real measurable value is shared between a service and a user. And dont try and tell me that mayorships or game elements suffice. They dont – because they really truly don’t hold any REAL value. Umair calls it thin relationships.i think you are looking under the wrong stone.

    1. kidmercury

      i think foursquare does provide real value, via the example fred gave (free coffee for checking in X times). the question is is this enough value, and is value being efficiently allocated to members of the ecosystem (i.e. are all checkins equal? what about the guy who checks in and has 100 friends on foursquare vs the ugly loser who smells bad and has no friends? the rich guy with hundreds of friends who buys fance lattes or the smelly loser with no friends who is engaging in check in spam to get the free latte?). my beef with foursquare is along those dimensions. but, that is my beef with everybody, and IMHO foursquare is ahead of most at the moment on these economic dimensions.

      1. JLM

        The next step after customer “count” has to be “customer value” or average spend per customer. This is the more important characteristic of valuing customers.

        1. kidmercury

          yup….but will coffee shop share this info with foursquare? or betteryet, is coffee shop even able to share this info with foursquare? IMHOit will require a virtual currency, and getting merchants to acceptit….

          1. ShanaC

            I really want to see Venmo drive that problem away…..

        2. Carl Rahn Griffith

          Maybe I am naive, but I believe a lot of this is driven by altruism – and the success of many such apps will be largely driven by embracing this subtle quality of human nature.Namely, I only ‘check-in’ to places (especially repeat times) that I wish to show publicly that I endorse – and so wish to be publicised to others – to the benefit of the shop/bar/gym/gallery/vets/whatever it may be.

        3. Tereza

          Yes and not just one-time value of customer. Lifetime value of that customer.

          1. markslater

            right!

        4. markslater

          absolutely – and a method of tracking.

      2. markslater

        no one has mentioned merchant participation. the absolute key is to create millions of real merchant to consumer instances. FS does not do this – it is way too consumer focused.you dont need to check in to signal your intent and solicit a discussion with an audience of merchants. I believe that its being approached wrong.

        1. kidmercury

          what do you think of the roll your own location-based soc net stuff,like shoutem.com? curious of your opinion mark if you have one.

          1. markslater

            white labeling social networks? is location a strong enough dynamic to organize around? in every new “web evolution” there is always a company that takes the plumbing and wholesale’s it. Take this community here. We are a community of commenters first – a discussion community first. Should Fred seek out a provider that can organize us more socially, or locally? I think you need to look at what people gather around in the first place (here it would be listening to freds musings, and then participating in the conversation) and not steer too far from that axis.There are a whole bunch of people applying assumptions to local that confuse me. And there are multitude of reasons that people want to share local – that to me is tough to whitelabel.i’ll tell you what is strong enough to organize around – direct connectivity with eager merchant ecosystems ready to pull you in the moment you signal intent.we are making a bet that people will organize and act against direct economic incentive as opposed to some other type of social dynamic. At the very moment i signal an intent to buy – i want my merchants trying to sway me their way.

          2. kidmercury

            i think you make some great points mark. thanks

        2. Andre Siregar

          There is a startup that does this called Chlkboard.com which started just earlier this year — they are a location-based advertising platform.

          1. markslater

            i just took a look – interesting – you know these guys?

          2. Andre Siregar

            I know one of the founders here in Singapore. They have a good team.

    2. JLM

      Your characterization of the nature of relationships is a critical observation. This is the difference between “like” and “love”.

  16. David Semeria

    The main reason US software (both on and offline) dominates around the world is that it’s simply better. The US pioneered the metric-driven approach, split testing and continuous iteration.A similar situation arose in the financial markets in the early eighties. The Europeans behaved like “talented amateurs” – and so when the Americans arrived it was basically men against boys.

    1. awaldstein

      Well said!

    2. andyswan

      No question. It’s the same reason McD’s, Starbucks, and Toyotas win wherever they go: superior value, process and the power of saturation.You can argue with me all day about the taste of SBUX coffee or the nutrition of a Big Mac, but the market has spoken and people love the consistent value proposition and accessibility that these brands offer across geographies.You’re not going to “go wrong” (or have a hard time) getting a Starbucks coffee and a Big Mac while driving your Toyota, no matter where you are.Indeed, you’re not going to “go wrong” signing up for facebook.Summary: Value + Accessibility wins no matter where it comes from or where it goes to.

      1. JLM

        A truly wise and insightful comment!What is also interesting is that foreigners — damn right those people in foreign countries are foreigners — love almost all things American. McDonald’s probably has as much favorable impact on US foreign relations as the entire US aid program.The thaw w/ Russia was really driven by Levi’s and McDonalds.Who could hate any country who brings you Levi’s AND the Big Mac?

        1. David Semeria

          Actually, JLM, the opposite is probably more true. Europe has strong socialist roots (where the modern incarnation of socialism was basically invented). There has always been an unspoken wariness of American go-getters, which was merely amplified – rather than created – by the actions of the last administration.For every youngster eager to bounce into McDonalds wearing Levi’s and Ray-Bans, there is another who would pour scorn on the very idea.Business like McDonalds, Starbucks, Facebook, Google & Microsoft thrive owing to their superior execution rather than any appreciable US halo effect.BTW, I’m just pointing out the reality on the ground here, rather than taking sides.

          1. Carl Rahn Griffith

            Big topic you’ve raised there, David – very interesting and rather emotive. The hugely negative impact of ‘Dubya’ will certainly take a long time to correct by Obama.The value of quintessential legacy USA global ‘traditional’ brands such as those you cite, plus the likes of Coca Cola and Harley Davidson, do certainly rely on the benefits of some rose-tinted Americana allure, I believe, and so do tangibly benefit from some form of US halo effect.

          2. David Semeria

            Good points Carl. I don’t want to get into a political debate regarding the last administration (apart from mentioning that politicians, unlike the electorate, don’t have the option of changing their opinion mid-stream)You’re completely right about the Americana effect for some brands. My point was simply that while many Europeans aspire to riding a Harley whilst listening to Steppenwolf, there is a similarly large contingent who wouldn’t based similarly on what the brand represents.America certainly has the ability to polarize people.

      2. Dave Pinsen

        Discretion is also the better part of valor, i.e., big brands tend to avoid areas where they don’t think they can succeed. Maybe David Semeria can confirm this, but I’ve read that Starbucks has avoided Italy for this reason.

        1. Tereza

          A powerful business strategy is not just what you will do.It elucidates what you will not do.

        2. David Semeria

          Bang on Dave. There are no Starbucks (that I know of) in Italy. Certainly none in Milan. Similarly, there are no Pizza Huts, or Pizza Expresses. There was one KFC – but it closed quite soon after it opened (much to my displeasure).There are a few Italian owned Tex-Mex brands, but – to tie in with your point – I don’t think they’ll be opening in a location close to JLM any time soon….

          1. Dave Pinsen

            Worth noting, too, that there are globe-spanning European brands, including Italian ones, e.g., Illy, in coffee.

          2. David Semeria

            Sure, it’s not like the US has a monopoly on good execution. But it’s interesting to note how the leading national brands reflect their own culture. We have Germany (engineering), Italy (luxury goods), France (cheese, wine and films with sad endings) and the UK (err..pop music and sitcoms).The real challenge is to excel in industries with little or no history. This is where the US is strong.

          3. Dave Pinsen

            Interesting point about industries with little or no history, and the U.S. strength in that. America always promised new frontiers; perhaps that just transitioned from geography to technology and industry.One point re the UK: British pop music works here as is, but we have to re-make the British sitcoms to make them funnier and more entertaining.BTW, re Italy, there was a Q&A in the FT with the current head of Illy earlier this week. I was surprised to learn that it’s still family-owned (the current CEO is the grandson of the original Mr. Illy, who came immigrated from Hungary to Trieste). If memory serves, the FT profiled a few other global Italian firms that were also privately held. Is that more common in Italy? If so, why?

          4. David Semeria

            I had to smile at your comments re. British humour. It’s the only thing we do right! The only reason they are frequently remade for US audiences is down to fear of litigation – if they were aired in their original form too many viewers would die laughing.As regards Italian family owned businesses – this is a paradox which has attracted worldwide attention: how can companies which exist in such an inefficient country be so maddeningly efficient and successful?There’s so much to say on this topic, but I’ll just share an old Italian saying with you “the cow grows fatter under the eye of its owner”.

          5. Dave Pinsen

            “Die Laughing” reminds me of the one Flying Circus skit that I actually found funny, The Killer Joke.Family ownership and management is an elegantly simple way to avoid agency conflicts, I suppose.

          6. Berislav Lopac

            I think that in a really inefficient country, like Italy or my own Croatia, closely-controlled family business is the *only* way for a business to really succeed, as it relies more on internal rules and relationships than on laws and judicial system. And we all know of the *other* type of Italian family business which is successful globally. πŸ™‚

          7. Carl Rahn Griffith

            Re: British humour – agree, David.I am intrigued to see how the new Chris Morris (of ‘Brass Eye’ infamy) film will be received in the USA/Rest of World.Incredibly difficult/challenging topic (terrorism) to render in comedic form, but from clips I’ve seen so far, looks bloody good.And much of it is set in my beloved Sheffield (not exactly a hotbed of terrorism, but many of the UK’s extremist Muslim terrorists have hailed from adjacent towns and cities ‘Up North’) … anyway, have a look, fascinated to hear what people make of this based on these clips:http://www.youtube.com/watc

          8. RichardF

            UK – Science, we consistently produce the best scientists in the world, then we fail them by not giving them the resource to commercialise their discoveries

          9. Carl Rahn Griffith

            Love that final sentence, David. Spot on.I don’t travel much in Europe nowadays but for many years I visited most major European countries on a regular basis, mainly via business. To this day, Italy and the Italians is my favourite place, where I felt most at home and got to see and understand a different perspective on what it meant to others to be British.The interesting – recurring – British themes that people around Europe really loved (much more so than whenever I was in the USA) reflected a love of a somewhat mythical/romaticised view of England (notably ‘England’ not ‘Britain’) – brands and products such as: Barbour (outdoor clothing), Savile Row tailors, Jaguar and Land Rover (cars) were always very highly admired as capturing and reflecting the lifestyle of the English landed gentry – the ‘hunting, shooting and fishing’ lifestyle, as it were – which is of course in reality applicable to only a tiny percentage of the UK’s demographic, but does, sadly, (still) accurately reflect the lifestyles of the power-base of England.When Madonna set up camp over here for a few years ago this is exactly the whole lifestyle she bought into. Most odd.We (UK) don’t do the brand thing very well, at all.

          10. David Semeria

            Yes, I remember the photos of Madonna sitting on her ‘orse in tweeds and jodhpurs.Agreed, most odd.

          11. markslater

            no – we are much better at food.

      3. enrolled agent exam

        Totally agree with this point. It’s the value and power of saturation, definitely. It’s the same with social networking– people all over the world are going to go with what works and is popular, and that just happens to be Facebook.

    3. kidmercury

      the fact that the US has the dollar, and thus can build robust financial institutions capable of financing scalability, has a lot to do with it IMHO. also enables american companies to outsource to other countries and attract foreign talent.as the dollar empire collapses, and as foreign countries have a mobile landscape that is well ahead of what is in the US, i think we’ll start to see a different picture.

      1. David Semeria

        Kid, I would say it has less to do with the dollar, and more to do with the US being maniacally goal-driven (at least when it comes to software – and other industries such as those mentioned by Andy above).

        1. kidmercury

          Well, if what you are saying is true, then US software companies will thrive even as dollar tyranny ends. IMHO we’ll get to find out in our lifetimes.

    4. Mark Essel

      Dave, with regards to split testing/continuous iteration, I’m more than getting my 2 cents worth out of this interview of Eric Ries by Robert Scoble. I’d say it’s a must watch for founders.

      1. David Semeria

        Thanks very much Mark, I’ll take a look when I get back onto broadband.

    5. hakantheone

      No doubt, US software is superior, being an American brand is a big advantage, but these are not the main reason Facebook has spread like a wildfire. Its their sleazy marketing method (on the border of criminal) was the real reason.Many people use the same username password combination all over the place. They have used that fact by tricking people to give up their e-mail passwords and send invitations to everybody on their address list.I have realized this when I got an invitation from a person I did not know. Then I searched my e-mail box for his name. I found an e-mail with an attachment he sent for somebody else who could not send me that attachment.He probably did not even know he was sending me an invitation when he gave up his email password.

  17. Stephen Purpura

    One can model this as a network diffusion problem where every network — including the big guy — is really just a local guy in every market. Based on modeling of other network diffusion problems like product adoption, the theory roughly predicts that the big guy will overtake the local guy when the marginal value of adoption swings to the big guy.So, people may join Foursquare in Paris, find that it doesn’t work for them to get what they want (sex? admiration? whatever …) and then they try Tellmewhere and they find it gets them what they want in Paris with greater likelihood. The theory predicts that this will work in Paris until a steady state is reached where the people in Paris (at any given instant) believe that the likelihood of getting what they want is equal (between Foursquare and Tellmewhere). And then Tellmewhere will collapse.

  18. paramendra

    Facebook, since launch, has done an amazing job of growing in terms of features and functionality. Twitter on its own did not, but it did do an amazing job of nurturing an ecosystem. FourSquare is just starting out. Can it nurture an ecosystem? Will we be seeing a FourSquare version of Facebook Connect? So that you don’t check in only through FourSquare, but FourSquare is there in the background. We will have a clearer picture by the end of the year. FourSquare has its work cut out for it. It stands a good chance, but that success is not guaranteed at this point. http://technbiz.blogspot.co… It will be tougher for FourSquare than it has been for Facebook and Twitter because FourSquare, by definition, is about location. Mostly local location. But it could pull it off. It could do it.

  19. Rob Lindberg

    We shouldn’t assume that network size, especially when emerging or earlier, is indicative of future dominance. Simply look at Yahoo vs. Google, or MySpace v. Facebook. How soon we have all forgotten that Facebook’s network has bested the MySpace network only in very recent history. Almost certainly, it was Facebook’s niche entry (college students), features, and quality control which allowed it to beat MySpace.

  20. pfkrieg

    I think the answer is “it depends.” Critical mass is the issue, but I use liquidity (in the markets sense) as my way to conceptualize. Liquidity feeds upon itself – people trade in the most liquid market for a stock, which makes it more liquid. For social networks, you participate in the one that your friends are on, which makes it more liquid and attracts the marginal participant.The issue is that the consolidation of markets happens at different times, depending on the attractiveness of the alternative. Take Orkut – I believe Orkut is still the preeminent player in Brazil. Take LinkedIn – for professional contacts, LinkedIn is still more powerful than Facebook. Facebook dominates its market, but the market for Brazilian social networking is still sufficiently distinct, and the market for professional contact relationships is still sufficiently unique, that those markets haven’t consolidated.The question in front of Foursquare is whether the location aware market will naturally expand and there will be one preeminent player, or whether there is sufficient cause for regional boundaries to result in geographic winners.My hunch is that there is a multiyear competition between Foursquare and Tellmewhere, with each strongest in its home turf, but having to compete on feature-functionality to gain traction in the other’s home territory. Foursquare should make sure not to take TMW lightly, because if TMW develops a killer app in Europe, they could blindside Foursquare. And vice versa.Unless, of course, the two networks merge. But that’s the ex-banker in me talking…

  21. WA

    Another proof set in thinking globally and acting locally perhaps?

  22. Boris Wertz

    I wouldn’t underestimate the feature aspect. Facebook killed almost any other major social network in North-America because of its focus on real names / real friends that kept communications free of spam and created a trusted environment. It is simply a superior product in any geography. Most social networks in Europe were however MySpace clones and the only one that successfully copied Facebook was Germany’s StudiVZ. They have so far kept their market position in Germany where Facebook might have the lowest market penetration of all European countries. So network effects definitely play a role but in this case I would not underestimate the superior Facebook product.

    1. fredwilson

      that is a great comment and perspective boris

      1. markslater

        and while we are at it – hat tip to twitter for doing the same thing. Its not like the technology was not around before they came along – they just executed better by bubbling up the features and taxonomy that they felt was important to the user.

  23. bobwyman

    Clearly, since social networks and networks of “common interests” span geographies, one would expect to see network effects which span geographies as well. The question shouldn’t be are there effects, but rather how they would be characterized and whether they differ from network effects within geographic areas.I would expect that the “effect” of any additional connection in a network varies, in part, proportionally to the “distance” of the new connection from any pre-existing connection. However, it should be understood that “distance” in this context is not simply geographic distance, it would also incorporate a variety of more conceptual measures of distance.It should also be recognized that in some social networks, an increase in “distance” might actually increase the perceived value of a new connection. For instance, international networks of “pen-pals,” who value connecting with people from very different backgrounds, were famous long before the online social systems were developed.

  24. jenslapinski

    I think any web app can become successful in almost any country, provided it is localized in terms of language. However, if by the time you arrive, you have a strong local competitor, then I think you will have a hard time.Take Xing for example. Xing dominates the German market for professional networking. LinkedIn (as far as I am aware) has made little inroads there. The reason is that online networks tend to reflect real life networks. Once I am connected with all my friends on one platform, there is very little reason to switch to another platform. It is called network effect for a reason. :)Does Foursquare have a French language version? No? And there is a local competitors with a French language version? Then Foursquare is likely going to have a hard time in that locale. I know many people think that first mover advantage does not exist. But it certainly plays a role here.

    1. Tom Limongello

      Good points Jens. I’d go one further, after thinking about Foursquare in China a lot there obvious difficulties for social networks based in a different language, but for languages that are not based on a romanized alphabet those difficulties are pretty stark, and the difficulties are both cultural and technological.Facebook vs. Foursquare is not a clear comparison because the main action in facebook to create a network is collecting friends. On Foursquare there is value with few friends, but the actions are related to venues, and venues generally do not enter their own info, the users do. So if there are language differences in the navigation then entering a venue locally becomes a pain. For a country like China there are a huge set of problems beyond just language.1) Touch Screen and Virtual Keyboards. China by and large has not adopted mobile devices that with touch screen keyboards yet. Touch screen keyboards that we have on iPhone, Android etc can have Chinese character input that does not require the intermediary step of pinyin, without a touchscreen mechanism venue entry is a pain2) Location not GPS chip is not generally standard on Chinese mobile devices – so without the right hardware, in many cases means you can’t use the best software.3) Apps on US platforms. Currently all the apps for Foursquare are built on the platforms that are successful in the US, iPhone, Android, BB. China has way more S60 devices but there’s no app for that yet.4) Choosing which language to enter – in countries where there is a large foreign speaking contingent that are the ones who disproportionately go to bars and restaurants – e.g. Foreigners in Beijing, Shanghai etc. you have an issue of entries that do not have Chinese in them at all. The big issue in China has been that locals, especially cab drivers have no idea what the names of the bars that the foreigners like to go to on the weekends.

  25. Philip J. Cortes

    The most important thing to remember is that people can be members of two communities at once. In Spain, for example, mos of my friends are simultaneously members of Facebook and Tuenti. Tuenti got the edge on Facebook early on in the race, and built a strong and loyal following. When I challenge my friends as to why they use both services, they say it’s because Facebook let’s them interact with people in OTHER communities (myself in the United States, for example), while still maintaining their existing local links and online habits through Tuenti.The other big differentiator over time will be whether Facebook can keep up in terms of features. Smaller, local players, have the advantage of moving quickly, and acting more like startups. A font change for them only affects a million people, facebook’s changes affect 300M + people, and thus they have to be so much more careful. Tuenti on the other hand, is already integrating location into its service offering : http://eu.techcrunch.com/20…I don’t think tuenti will ever make it out of Spain, but I’m not sure Facebook will ever be able to replace it either.

  26. surretull

    Do network effects span geographies? Well, this is an empirical question meaning you’ll have to measure and see. My guess is that most networks are actually mostly local in the sense that most people mostly relate to people physically fairly close, but with some weak links to people in other geographies. Those weak links are probably enough to ensure that memes can spread widly, but it’s the local subnets that actually do most of the spreading counted in numbers of influenced people. I would guess that both facebook friend-relationships and phone records (for those who can get them πŸ™‚ coupled with for instance memberships in specific facebook causes are possible sources of data to confirm or deny this. Actually this could be an interesting research project for someone with the right kind of access πŸ™‚

  27. surretull

    Do network effects span geographies? Well, this is an empirical question meaning you’ll have to measure and see. My guess is that most networks are actually mostly local in the sense that most people mostly relate to people physically fairly close, but with some weak links to people in other geographies. Those weak links are probably enough to ensure that memes can spread widly, but it’s the local subnets that actually do most of the spreading counted in numbers of influenced people. I would guess that both facebook friend-relationships and phone records (for those who can get them πŸ™‚ coupled with for instance memberships in specific facebook causes are possible sources of data to confirm or deny this. Actually this could be an interesting research project for someone with the right kind of access πŸ™‚

  28. steveplace

    It seems that everyone assumes that the two network structures (fb vs 4sq) are the same. I think they are two different animals in terms of access (desktop vs mobile) and user’s intent (who you are vs where you are), so the network effects may not act the same.

    1. fredwilson

      great point about mobile vs desktop

  29. Suyog

    Awesome topic! I totally have to agree that network effects spawn geographies but there are some local reasons that trump in some cases -1. local laws – youtube is banned in turkey, china etc2. local regulations – google/china is the most talked-about but there’s also several other networks that are just banned in china and local versions of them have come up (you.ku for example)3. Hyves is very popular is Netherlands, Nader in Korea, Japan has it’s own strong social network – the key difference is that these networks are actually investing and continuing to develop as opposed to something like Orkut that was once popular in India and Brazil but now has lost most of that early ground to FB

  30. OurielOhayon

    your question is probably relevant for verticals that have not yet become mature. Facebook is a traditional vertical long time battled over. location networks is too new for US startup to become a worldwide standard. let s see in a couple of years

  31. Tereza

    It’s all about the people that make up the networks, and what their motivations are. Some groups frictionlessly shoot past geographic bounds. Others, not so much.So a SocNet that wants to go global needs to nail a demographic with that unbridled impulse. That’s what Facebook did.College students and teens, broadly defined as 15-25, are on a pulsating mission to meet and hook up with as many people as humanly possible. Define “hook up” however you want; it’s their job. Anyone with a pulse, no matter where they come from. So they’re, in real off-web life, in network-building mode. Facebook stepped in as the operating system for what they were doing anyway.These kids are traveling, fascinated by people from other places. (“OMG do you see that totally hot guy in the train car next to us?? I think he’s from SWEDEN!!!” and “Dude, the beer in Prague is so cheap and they say the chicks are easier there than Poland).With this dynamic it’s a natural that they push their social platform across boundaries.Observe Fred and Gotham Gal in Paris eating one fabulous meal after another, together. But…..where’s Emily? Ditching mom and dad, again, for her friends. Hopefully making new ones too. Sometimes Josh tags along.This is what they’re wired to do.About 2 years ago, Facebook starting inching up the age spectrum to people who aren’t that interested in making new friends.Old Farts (OFs) are obsessed with getting in touch with classmates from kindergarten and e-stalk ex-boyfriends. And planning reunions and playdates. And stressing out about their online reputations. It’s about maintaining and fortifying their previously created off-line networks.OFs are by and large stuck in their current, local lives. Not very helpful in crossing international boundaries. It is worth noting there is a small, elite slice of world traveler influentials who are excepted from the OF moniker.The prevalence of OFs on Facebook has made FB completely uncool to the cool people, thereby opening up a gaping market opportunity for new “cooler” networks for just “cool” people age 15-25.I’ve watched Lockerz — a “Generation Z’ SocNet — grow explosively in just 8 months. It appears to be cross-border growth, but I’d have to confirm that. They have completely harnessed the motivations and impulses of their target market.That’s where I’d look, to peel the onion further on how cross-border growth. The demographic is one that can naturally make it happen, at great scale and speed.Can you think of any other demographics that can match this scale and speed? I’d be interested to hear.

    1. ShanaC

      My generation has a huge amount of total awkwardness- we use things like travel and other people to get over it.And I was invited to Lockerz by a friend of mine. I don’t get it. Totally isn’t for me, but I see the hook as earning free stuff. Which would be awesome if I were 12.

  32. sigmaalgebra

    Yup, appropriate thought.Thought of that for our work. The situation’s mixed: In some cases, yes, there should be a network effect across country, culture, and language borders. In other cases, no, the differences block network effects.One of our advantages is very weak connection with English or any natural language.Or, heavily Vivaldi, Bach, Mozart, Beethoven, Rossini, Mendelssohn, Donizetti, Puccini, Chopin, Verdi, Tchaikovsky, Kreisler, Rachmaninoff, the Heifetz performance of the Bruch ‘Scottish Fantasy’ or the Sibelius concerto should be easy to understand nearly globally; the Susan Boyle, “I Dreamed a Dream”, ‘Les Miserables’, will cross a LOT of borders; so should Kellie Pickler’s ‘I Wonder’. Michelangelo, Bernini, Balthasar Neumann, Renoir, Degas, Rodin, i.e., much of European art history, should be accessible nearly globally. But most video clips, blogs, and long tail Web sites have some cultural barriers and some severe language barriers. But, for the major languages and cultures, there should be plenty of mass for a significant network effect.In our way of exploiting the basic data, there’s essentially some automatic ‘canceling out’ of aspects particular to regions with borders.Back to software.

  33. subbu arumugam

    I think network effects can be a bit more protective if the context of the community is focused. So say there’s a community for rocket scientists or applied mathematicians where members could discuss professional matters in their specific fields, I’d posit that another competing network would find it difficult to gain traction. (That said, I do agree with Nivi’s sentiments in this thread – regardless, you must continue to evolve/ iterate.)In such cases, to double back to Fred’s post, focused context (applied mathematics, organic synthetic chemistry etc) should by all means span geographies…

  34. Matt A. Myers

    “Well first of all, many people have social networks that span geographies. And those people tend to be influencers who are important in the value of an overall social graph.”Yup, the world is global. I have friends all over the world, and I make friends from all over the world when they travel here or when I was staying in hostels when I traveled out to western Canada (I drove with a friend – 3 days driving; I flew back!). I met some Spaniards, Australians, etc. but there are always the few from obscure places who you want to keep in contact with.Another example is Queen’s University here in Kingston has a large number of people who come to be educated as well from all over the world. Many from even 3rd world countries who have found a way (many in a relative sense). They learn to understand the power of social networks and what they can do – and the main reason these students have traveled so far is because they have a strong passion to help change their countries and society for the better. Of course there are the students who see business opportunities, and will see the same benefits of social networks.When they go back home too they’ll be great for giving Facebook credibility when they tell their friends about it or tell them to signup to become a friend of theirs.Credibility is an important factor which I think is overlooked at a lot in the social sphere — it is linked with trust of course.—Just read the rest of the post and I’ll give my thoughts on the actual question:Continue to dominate locally?Users will decide. Who’s to say you can’t get 1mm different local people in Paris using it? You need to just appeal to a desire and fill it the best way possible, which in part means fit in the best possible and of course filling a need. I’ve thought about starting a consulting company to help other companies expand internationally, properly to take culture and national / local behaviours into account / and help them with being colloquial, as I’m going to need this and be doing it myself in the very near future anyway – and I’m pretty good at it myself, and I enjoy figuring it out.The outcome between 2 companies who do this extremely well would be interesting to see. I’m not sure there’s been a proper clash yet to be able to analyze. If anything, someone with a bigger budget and wants to stay longer term may just buyout competitors – so having a better valuation of worth and monetization could in the end be the winner, and that could be the sole factor that matters at the end of a war..Is it universally true?Yes, but the importance of dealing with the little things is much greater compared to ground businesses; But even Starbucks has room to improve, and they’re nowhere near as dynamic as online businesses with the targeting and tracking possible, so what all of those factors are that truly matter as a base are still being discovered – hence why the term social experiment is put out there a lot, and it’s a very valid term.In the end I think the winner will be who understands social the most (such as not squeezing people too much) and who uses best business practices such as branding, speed of service, utility, etc..My little tangent…Facebook’s proved now that they can make money. Facebook isn’t in trouble — they made $2 off of ‘me’ last year; How much have other social networks made that are still growing massively? Twitter isn’t in trouble either – or shouldn’t be anyway.Also, on Facebook, would I pay $5 to not have ads (for the whole year)? Probably. But I’d pay some money even just for the ability to stop/block certain ads – like from being teased by beautiful girls in ads because I have my status set as Single; I don’t mind the travel deal ones though. Socially, there’d be other benefits for allowing this too – even if just 100 people used it.Also, don’t forget to look at politics as to barriers of entry and growth into an area. Russia is very pro-Russia. So is China. And if the governments take that stance, and perhaps could silently push or prevent good or mass expansion. And traditionally in Russia heads will roll if you steal away someone’s market share…And now having read through comments…David Semeria summarizes it well. The US has the longest history of doing things very well / properly, and so a lot of talent is pooled. It’s the systems in place in the US that facilitated its own snowball through attracting / drawning talent and intelligent people who use and benefit from these systems, and of course having an educational system in place is an the important factor; It creates an environment where people are readily available to take a well-thought idea to fruition.

  35. ShanaC

    Network effect is a little weird- it is something of a different mindset when you are in network versus out of network. I have friends who I lost touch with (who I am friends with on facebook, caveat) on facebook. We never talk, because the internal network, the cultral miliea and style of what they do (in hebrew, choices of what they choose to do there) are totally different than what I choose to do because I came back to the states and chose a different life. And I am seeing some differences slowly as some friends of mine graduate.Facebook makes it worse with the “most popular” stream. I’m in the middle of writing up about how this works exactly: it seems to keep track though of who i am close with right now and give out statuses and links and groups of those items. It’s changing as a grow with it.As a result, I’m not surprised by the lack of network effect outside of a core group of something like Foursquare, which is why it is highly possible for local competitors to occur. Because it is inherently locally based, it relies on the core group of who you are seeing right now to leverage its power. *Shrug*

  36. Guest

    The audience overlap between internet usage, familiarity with English language, international travel and some general cultural conventions around personal identity have clearly driven the network effect across borders in the Americas and Europe.In these Western Markets, the need for localization to language, competitive situations, and cultural conventions is low. In every place where the requirement for localization is high, American internet services have generally failed. These are the countries in your post – China, Russia, Japan, and Korea – and these are just the markets that have enough scale for American companies to pay some attention. These markets are also large enough to support homegrown developer/start-up environments. So, new services (some copycat – though not all) have a developer and start-up community to get them to market.In western markets, American internet services have an advantage – they have the scale that comes with the English language market; they have the advantage of the largest and most developed developer/start-up environment and they have the close familiarity that is experienced by other non-English, but western markets. Outside of these markets, where you have large internet populations, relatively little familiarity/affinity for American products, and a supportive venture/start-up environment, it is very hard for American products to break-in. None of the big internet environments are very good at localization – Ebay/Yahoo dead in China, Mixi/Cyworld nowhere outside of their home markets, … QQ essentially a China only product.One question is whether with the advent of better translation technologies, more gaming and video (which look to be a universal), will the cultural difference wash out over time. Or will other large cultural and linguistic regions develop their own scale and developer/start-up environments, creating more localized online experiences – my candidates would be the Arab world, Vietnam, and the Malay/Indonesian area. In these areas, Internet penetration is still relatively low, start-ups receive only minimal support and there are very large cultural differences that might generate new social online experiences – social gaming (started in Korea, and China), social collaboration for online novels/manka (started in China and Japan), … there may be others still to come.The most interesting place to ask the question would be India. Unique culture, large English speaking market, strong venture/start-up infrastructure. Are the internet services that succeed there mostly platform like services that local entrepreneurs build on top of, or are there unique local services, … Some one with more experience in India will need to take it from here.

  37. thornley

    Fred, It may be worthwhile to consider Canada’s experience with Facebook. Facebook became the dominant social network in Canada almost as soon as it was released from the confines of its university roots. In fact, through late 2006 and into 2007 and 2008, Canadians looked on with interest as Americans clung to MySpace. We were already on Facebook. Because of the network effects that it came to us as the largest network? No. In fact, I’d argue that the special circumstance of Facebook was that, from day 1, Zuckerberg and company “got social networking right.” When you are so much better than the competition (Google wasn’t the first search engine), simple excellence can supersede network effects. Just my view.

  38. Chipper Boulas

    I believe network effects and superior value are both important, and their relative weight depends on the situation:- with eBay auctions, network effects dominate. Sellers go where buyers are and vice versa. Since auctioned goods are mostly used goods, sellers cannot simultaneously list on multiple marketplaces – so the effects are sticky. When eBay went to China, most of the goods were new products with multiple quantities sold at fixed price, so eBay became just another channel, and the superior value of Taobao’s product won.- with Facebook vs MySpace, it was less a network effect – because people can belong to mutliple networks, but a superior product/value that allowed it to come from behind and overtake its initially much bigger competitor.- with Foursquare vs Tellmewhere, I think it’s a bit of both. Network effects are sticky because each service builds a useful history of individual’s checkin histories and – in Tellmewhere’s case, personal ratings/preferences – which are not easily portable. However, since they only have 500k to 1 million users, they are still far away from their mainstream aspirations of serving tens if not hundreds of millions of users, so my guess is that a lot of innovation is still in front of us, and that “superior value” will play a major role as well.

  39. falicon

    Interesting question.I think the largest network wins when the core of the service is the network (ie. facebook). In this case, influencers are eventually pulled into the network and then help fuel it’s growth in their own area.In Foursquare’s case, I don’t think (currently) the network is the core service and so I don’t know that it will span geography as quickly or as well…the influencers in this case need to also be jettsetters and world travelers (if this happens to be the case by coincidence then 4sq will def. grow to be the largest and take over the world).

  40. blake41

    Facebook dominated Myspace because it was a superior product with a core network of high value individuals (college students) who attracted other members to the service. I was just in Brazil talking to a similar crowd and they all said Facebook is starting to dominate Orkut there because they want to be a part of the global elite, rather than the local. Facebook dominated the world because it was the only network that had a presence everywhere. People kept a local network, and additionally gradually migrated to the global network that allowed them to connect with people around the world. As we are the largest native english speaking country, whatever network ends up dominating America, will eventually dominate the globe as long as the value proposition is similar enough to Facebooks. Facebook allows me to keep in touch with my friends, and it’s not relevant where they are. Foursquares friendship is only valuable if we are in the same locale. Therefore I don’t think it will have the same global network effect as I don’t really care where my friends are checking in in Paris if I can’t meet up with them.

  41. John Galaugher

    Great post, Fred. This is an issue we cover in our classes – classic example is eBay in Japan. They were 5 months behind Yahoo Japan’s auctions & got squashed, eventually pulling out of what grew to be a multi-billion dollar mkt for Yahoo. Network Effects are derived from exchange – but if most Japanese don’t speak English & most English speakers don’t speak Japanese, the network breaks down (shipping & legal issues apply, although some have found ways to gain the arbitrage market). You can see what our students read on this in ‘Move Early’ section here http://www.flatworldknowled…. Now with social networks, same thing – if a network within a cultural region has stronger ‘exchange’ than those outside, the inside network will win (V Kontakte in Russia, Orkut in Brazil). Network effects also benefit from third-party apps, but the app value-add in social networks might not be strong enough. Finally users care about stability – when you start to embed your life in a social network (photos, videos) you don’t want to chose a service that’ll die. I think this last piece will be key to Facebook taking share away from larger regional rivals.

  42. PA

    The difference I see between services like LinkedIn, Facebook and Twitter on one side and FourSquare and Google Latitute on the other is the inherent “location aware” characteristics in the latter. And this is the basis on which I divided them into the two camps.Network effects in services like LinkedIn have without doubt contributed to rapid growth by beating out local competition in many regions e.g. one student at a university gets on Linkedin, and soon enough the entire student population wants to rake up connections and create profiles on the same service (example from my university in India!).In my mind, the reason for the success of products like LinkedIn, Facebook and Twitter has nothing to do with “location” (of the users) and more to do with the purpose behind the use of a service:a) Professional contacts, professional network for LinkedIn – It hardly matters if I am in Paris and my network is primarily spread out over San Francisco, New York and London. I can seek professional recommendations and step across friends (get introduced) to reach out to contacts should I need some in Paris. My need for professional contacts in Paris is not immediate. b) Status updates, sharing photographs with family and friends on Facebook or Twitter – again this does not have a locational aspect to its success. I can share a video of the Champs Elysees at Christmas-time on Facebook, and my friends are happy to comment on it, irrespective of their location. You share moments, information, updates and your social network on these platforms can interact with you and enjoy the content irrespective of their physical location. c) Foursquare / Google Latitude – now the use of these products is largely tied to immediacy of location information. If I am a Foursquare user in Paris and all my friends are in New York – I can still browse their favorite tips for venues in New York, but it doesn’t increase my own use of the service. Nor can I run over to Antique Garage in New York just because I know my friends are having brunch there. Its only relevant if my network in Paris is on Foursquare and active – e.g. if I’m running errands at 3pm on Saturday, but I know one of my friends checked-in to MusΓ©e de l’Orangerie – later in the day when I’m free at 4pm, I can try to connect with her and see if she’s still at that location and then WE CAN MEET IN PERSON. The way I see it, the purpose of the location-based services is to know where your friends/family are, so that you can “meet in person” at the venue!

  43. Ilya

    As a Russian American who has lived both in the States and Russia, I’ve always been fascinated by the topic of cross-border network effects.Facebook is definitely becoming more popular in Russia, but it has not gone viral by any stretch of imagination. A few of my friends are poking around and trying it out, but these guys most often have friends on there who either live in the States or in western Europe. A local Facebook clone (vkontakte.ru) has been around for a few years, and it’s immensely popular with Russians. It’s always been riddled with security holes and is inferior to Facebook in many ways, but that hasn’t discouraged anyone. There is also odnoklassniki.ru, which should by now have an account for every Russian-speaking person in the world.I don’t know if this is uniquely Russian trait, but there is tremendous affinity for local brands even when there are equivalents out West that are much better technically speaking. Local interfaces must be flawless for adoption, and anything less than perfect is often a huge turnoff. Google.ru used to have dismal localization (and no uptake with the Russians) for a long time until they started taking the Russian market seriously a couple years back.But it’s not just localization. Anyone remember ICQ? Well, it never went away in Russia, and there is nothing to date that even comes close in popularity. Skype and google talk are rarely used for chat. AOL, MSN and other chat services that raged in the States never even may it on the radar screen in Russia. And I can’t think of anything besides network effects that could explain ICQ’s staying power here.

  44. Carl Rahn Griffith

    At least the globalisation of McDonald’s has given us the Economist’s splendidly simple Big Mac Index:http://www.economist.com/da

  45. awaldstein

    Ahh…”Royal with cheese” from Pulp Fiction on European culture and Big Macs.http://www.youtube.com/watc

  46. bobwyman

    Don’t forget the AMC “Matador” car — in Spanish, matador means “killer” as a noun and “backbreaking” as an adjective.

  47. Gene

    Existence of a network <> network effect. Networks alone aren’t barriers. The network itself needs to drive value to be a barrier.

  48. kidmercury

    true dat snopes is for chumps

  49. Matt A. Myers

    Interesting thought on #1 but I definitely see it having an effect.I’m comfortable with ignoring people’s friend requests now though, or I send them a polite message. I do know some people who have dozens of friend requests they ignore because they’re from people they don’t want to add as friends, and to avoid being found out they’ll just in person say they haven’t gone on Facebook in awhile. πŸ™‚

  50. kidmercury

    lol classic! one of my all time favorite clips from one of my all time favorite movies.

  51. awaldstein

    moi aussi