Sean Parker's Web 2.0 Summit Presentation
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The New Era of the Network Service Sean Parker Web 2.0 Summit October 22, 2009
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Transcript of Sean Parker's Web 2.0 Summit Presentation
The New Era ofthe Network Service
Sean ParkerWeb 2.0 SummitOctober 22, 2009
The New Era ofthe Network Service
Why companies like Facebook, Twitter, Ebay and Apple (but not Google) will determine the future of the internet
Companies that Harness the power of networks
will dominate the internet
COLLECTING DATA IS LESS VALUABLE THAN CONNECTING PEOPLE
“When the value of a product to one user
depends on how many other users there are.”
WHAT ARE NETWORK EFFECTS?
- Shapiro, Varian
• Option Value• Expected value of potential
connections between nodes
• Action Network Value• Real value of active connections
between nodes
• Switching Cost• Cost of switching networks for any
single user or group of users
THE POWER OF NETWORKS
• Network effects produce winner-take-all markets
• The big get bigger
THE POWER OF NETWORKS
METCALFE’S LAW
valueincreaseswith n2
METCALFE’S LAW
valueincreaseswith n2
METCALFE’S LAW
valueincreaseswith n2
METCALFE’S LAW
Size of Network (n)
Potential Value of Networkincreases with n2
Basic unit of value for a network company is not the data it stores, it’s the number of connections it facilitates
WHAT IS A NETWORK COMPANY?
Marketplaces
eBayCraigslist
Communication
NetworksFacebook
TwitterSkype
GamesWorld of Warcraft
ZyngaForSquare
PlatformsApple iPhone
INFORMATIONS SERVICES VS. NETWORK SERVICES
• Information Services • Google, Yahoo!, CNET, YouTube, MSN• Core value is collecting and processing
data
• Network Services• Facebook, Twitter, Ebay, PayPal• Core value is facilitating a relationship
between people or groups
• Craigslist
• MySpace
• AIM• Ebay
THE BEST PRODUCT DOESN’T ALWAYS WIN
A NATURAL MONOPOLY: EBAY
Source: Company Filings
Registered Users (MM)
Source: Company Filings
Registered Users (MM)
A NATURAL MONOPOLY: EBAY
“A MONKEY COULD RUN THIS BUSINESS”
WHY DID EBAY BUY SKYPE?
Source: Company Filings
Purchase Price in 2005:
$2.6B$2.6B•75mm Registered•$70mm Revenue
Purchase Price 2009: ??•521mm Registered•$740mm AnnualizedRevenue
THE FALL OF FRIENDSTER
• Social networks are communication services, they obey the laws of networks
• Friendster was not a fad
• The company failed due to difficulties scaling the infrastructure
THE FALL OF FRIENDSTER
Source: Google Trends
Search Index Volume
2004
FACEBOOK VS. MYSPACE
Source: comScore Media Metrix
Unique Visitors (MM)
HOW THE HELL DID MYSPACE LET THIS HAPPEN?2005•Facebook: 8mm users•MySpace: 60-100mm users
•Systematic product failure•Technical limitations•Facebook had a secure beachhead in college market
CAMPUS WARFARE
Facebook SchoolsBerkeleyCornell
DartmouthHarvard
Yale
Enemy SchoolsBaylor
ColumbiaStanford
Facebook SchoolsBerkeley
ColumbiaCornell
DartmouthHarvard
StanfordYale
Tactical Schools
SouthwesternTexas A&M
UTA
Facebook Schools
BaylorBerkeleyColumbiaCornell
DartmouthHarvardStanford
Yale
BATTLE FOR GERMANY
BATTLE FOR GERMANY
Source: comScore Media Metrix
Unique Visitors (MM)
BATTLE FOR GERMANY
Source: Google Trends
Search Index Volume
DATA PORTABILITY IS A RED HERRING
• Value of connections is super-linear, value of datasets is linear at best
• Moving data is hard, moving people is harder
• Example: ebay’s auction database
• Data portability is easily solved by converters and adapters.
• AdSense
• Dodgeball(?)
• Orkut
• Google Talk(?), Wave(?)
NETWORKSERVICES
GOOGLE DOESN’T OWN NETWORKS
• AdWords
• Gmail
• Search
• Maps, etc.
INFORMATIONSERVICES
CLOSING THOUGHTS
1. Over the next decade the aggregate value of the emerging class of network companies will dominate the internet
• NEW economic value on the internet will not be generated by search
• Google will continue to be an economic powerhouse but its relative importance on the internet will decline
The New Era ofthe Network Service
Sean ParkerWeb 2.0 SummitOctober 22, 2009
