Network effects
Do not pass “Go.” Do not collect $200. Unless of course you have a get-out-of-jail-free card. Or you can buy your way out. Which, if you’re on the verge of building a monopoly, you most likely can.
The gentleman pictured above never played the famous Parker Brothers board game; he died before its invention. But an actual monopoly—that he knew about. His name was Theodore Newton Vail, and as head of AT&T he convinced President Woodrow Wilson that the telephone would spread more rapidly if it were brought under a single monopoly. Central to his argument was something called the “network effect.” Basically, it’s the impact that one user of a good or service has on the value of that product to other people. In the case of the telephone, which is the classic example, it’s easy to see that the more people there are who own telephones, the more valuable the telephone is to each owner.
The network effect has also been crucial to the success of another monopoly, or if not actually a monopoly, then a company frequently accused of monopolistic practices: Microsoft. Windows came to dominate computer operating systems because it is compatible with the widest range of hardware and software—which is true because so many makers of hardware and software ensure compatibility, in order to reach Windows’ huge market of users.
On the web, the growth of social networking sites like Facebook and MySpace can also be attributed to the network effect: the more people who register on a site, the more useful the site is to its registrants overall. At one point, after reaching a critical mass of users, MySpace had a veritable monopoly on the social networking scene; it had exponentially more users than anyone else, so it was the one you wanted to join. But the network effect does not guarantee a monopoly’s continued dominance. In the eyes of many, Facebook is now the site to join, and MySpace is “so five minutes ago.”
Last night, I was able to witness the network effect first-hand, in the social networking sense. Not online, though—in our offices. We had invited fifteen or so members of our “cast of thousands” to join us for pizza and parley. A major part of the evening was the discussion of business opportunities, and as the conversation progressed, it quickly became apparent that as much as Big benefits from an extended network of unique perspectives, every member of this network benefits, too. One person’s observation would spark another’s comment and lead to a third’s epiphany. Ideas bounced back and forth, new connections were discovered, new approaches emerged. It wasn’t just good old-fashioned brainstorming, as you might find with any group of smart, talented people in a creatively focused company—it was more unpredictable than that, more fertile, because the experiences were more varied. We weren’t all employees of a single company; we were a network of freelancers and contractors and consultants, and the resulting diversity of viewpoints made for a richer, more inventive discussion, of uncommon value to each person in attendance. Big, I could see quite clearly, is much more than the sum of its parts.
So then, with such a powerful network effect, is Big another monopoly? Hardly. And we wouldn’t want to be. Monolithic dominance just isn’t our style. It flies in the face of the things we value most: diversity, individuality, the impulse to shake things up. That’s how you get big ideas, after all. That’s what our cast of thousands delivers. That’s the Big network effect.