Why give away the crown jewels?
Posted by James Tue, 13 Feb 2007 19:02:00 GMT
I just saw this article on Slashdot about Facebook opening their APIs. A friend of mine were discussing why Facebook would do such a thing a week ago, and we came to a pretty logical conclusion. I thought I would share this with you, free of charge.
Facebook is a social network site, and like all social network sites, it relies on the network effect. In fact, it lives and dies by the network effect. To them their only valuable asset is their users and consequently user information is their crown jewels. So it's somewhat perplexing that they're willing to give their crown jewels away. What rational company run by rational people would do that? Well, apparently the same rational people that rejected a $1 billion dollar buyout offer... but I digress.
It all comes down to the two cases why people would want to use the Facebook data. The first case, people want to build add-on services to Facebook. The second, people want to duplicate Facebook and steal their users.
In the first case, Facebook would definitely want to you to build these value-add services. For example, Facebook has no chat facility, and if you build one, you make Facebook more valuable to its users (and potential buyers). This is win-win because if your service gets popular, Facebook gets more popular. Not only that, if your service ends up being a miserable failure, no harm comes to Facebook. This way, they can figure out what their customers like or dislike without actually risking their reputation (as they did with the whole Feeds business), or doing any work at all. So in this case, the analysis is straight forward.
In the second case, Facebook would definitely want to know about you. We've all seen how Friendster went from social network king to social network has-been. Facebook knows about network effect, and the important thing isn't absolute number of users, but the growth rate. So don't think Facebook won't know about you when you start to pull information about individual users from their database. Oh, they'll be keeping track closely which information is pulled, how often, and by whom. If only Friendster knew how fast MySpace grew while they struggled, they probably could've averted death. If you want to build a Facebook clone, Facebook will offer you candy, since there's no sweeter way to get people to sign up for your social network than if all your potential customers are already signed up. But the moment you take the candy, Facebook would have gathered valuable intelligence on you. Besides, they're already big enough that it would be impossible for you to steal any significant portion of their users before they can react.
In the light of this analysis, it's straightforward why Facebook decided to act generous. As Sun-Tzu said, "keep your friends close, and your enemies closer." People at Facebook must have read The Art of War (or at least, saw the Wesley Snipe's movie of the same name).
Now if only I can figure out why they didn't want a billion dollars...
