HSM Inspiring Ideas BLOG

Facebook's Tipping Point

3.4 Years for Facebook to Reach a Tipping Point. What about Wikipedia? Yelp? YouTube? Online 2-Sided Networks and Getting Exponential Growth 

             

    

    How long did it take Facebook to reach a “tipping point” after which growth became exponential?  How about Wikipedia? Yelp? YouTube?  According to a group of Wharton School of Business and University of Pennsylvania School of Engineering students, Facebook took 3.4 years.  Wikipedia took 4.1 years.  Yelp and YouTube got there in 2.1 years.

    The primary question these students sought to understand is that for two-sided networks, what factors lead to the proverbial “tipping point” after which growth becomes exponential?  It is an interesting question especially as many of the most prominent user-generated and community websites are or display characteristics of two-sided networks.  It is also a question that many entrepreneurs or investors considering such platforms will be interested in understanding.

    While many of their findings & observations are intuitive, we thought that the scope and methodology they undertook to understand the length of time to tipping point as well as their analysis would be of interest to many of you.

    Their analysis sought to uncover insights into the following three related questions:

1. For user generated or community websites that demonstrate two-sided network characteristics, what factors lead to a “tipping point” after which growth becomes exponential?

2. For websites focused on a similar market, what determines the success of one over the other(s)?

3. When thinking specifically about the college student market and developing community or user-generated content websites targeted at them, what do students value and as a result, what should entrepreneurs be cognizant of?

    Before diving into the findings and implications, a few very brief definitions/terms related to two-sided networks.

    A two-sided network is a market where the value of an agent in one market is related to the number of actions taken by agents in another market.  The term network effects implies that the value for one agent is affected by the number of actions of other agents.  (source: Economics of Two-Sided Markets by Professor Lorin Hitt, The Wharton School)

Question #1 – How to reach the Tipping Point?

Company Focus:  Analysis examined Yelp, FaceBook, YouTube, Wikipedia, and CitySearch.

Methdology:   ‘Active users’ data and Google Insights index data for Facebook yield extremely similar graphs over time. This implies that Google Insights data can be used as a reasonable proxy for active user data, which was more difficult to find for other websites in question.

    To determine the tipping point, the team examined the Google Insights data.  To make the data linear, took the natural log of both dimensions.  They found the equation for this line and developed an equation for the original line.  To find the growth in the index value over time, they took the derivative and then determined that when the index growth hit approximately 0.05 per week, the websites started to take off and display exponential growth.  This point was chosen as the “tipping point”.  The progression of events which unfolded and the activities undertaken by these websites support these findings.

    The high-level findings for each website in question are provided in the graphs and milestone diagrams given below.  Each figure has a yellow dot indicating the “tipping point” according to the methodology already described as well as various milestones along the way.

    As you will see, the time to reach the tipping point for each of these sites varies quite significantly as mentioned earlier.  They also analyzed CitySearch which did not hit its tipping point as you will see below.

•    Facebook = 3.4 years
•    Wikipedia = 4.1 years
•    Yelp = 2.1 years
•    YouTube = 2.1 years

FACEBOOK

WIKIPEDIA

 YELP

 

YouTube

 

CITYSEARCH

    So given the data, how can internet-based two-sided networks reach the “tipping point” quickly and effectively?  Unfortunately, there is no magic bullet as you might suspect.  The student’s observations are given below.

    1. Providing incentives or access to third party developers can increase network effects and expand user base. Facebook has done this as had YouTube by making it extremely simple for users to embed their videos.

    2. When relevant, increasing global appeal can increase user base as was done by Wikipedia.

    3. In cases where targeted, deep content is more valuable than broad, superficial content, targeting users in popular metropolitan areas may be a strategic way to propel traffic and website use as evidenced by Yelp.

    4. Luck and finding a big wave to ride do play a role and so macro events beyond your control can greatly affect traffic.  It’s up to 2-sided network websites to take advantage of this by finding ways to appeal to a network that might benefit from your traffic and to scale appropriately to meet this demand as YouTube did.

    5. And finally, complacency can kill.  Another offering with a similar mission and improved offering may negatively affect an incumbent’s position fairly rapidly despite scale advantages that they may have as seen in the case of CitySearch vs Yelp.

    To see the findings related to questions #2 and #3, please see the complete blog post on ChubbyBrain.com, a user-generated website that delivers intelligent information about and expert insights into emerging business models, technologies and innovative startup companies.(http://www.chubbybrain.com/blog/2009/03/41-years-for-facebook-to-reach-a-tipping-point-what-about-wikipedia-yelp-youtube-online-2-sided-networks-and-getting-exponential-growth/).

 

Posted by Juhi Heda, a Wharton student, sponsored by Knowledge@Wharton

Forecasting Is Not About Crystal Balls

    If forecasting were only about crystal balls, mere mortals would not stand a chance. Paul Saffo, foremost forecaster, strategist, Stanford University Professor, and featured World Innovation Forum presenter says that the secret – which is attainable to all – is “intuition”. Once we understand how to harness and apply intuition, we can then tie forecasts to strategy, insuring a greater sense of reality resulting in meaningful and valuable forecasts. Forecasts that align to strategy will lead to making the right decisions now

 

    In discussing a pre-World Innovation Forum workshop that he is conducting on May 4, 2009, Saffo says, “When crises hit and uncertainty overwhelms us, our first instinct is to pull in and focus on the present. But this instinct is as disastrous as instinctively turning against a skid on an icy road.

 

    This session will present a set of simple rules calculated to reframe this instinct into reliable forecasting intuition, which will then be applied to issue areas of specific interest to attendees. Attendees will learn how to rapidly map uncertainties, develop forecasts and translate forecasts into strategy responses”.

 

    Check your mortality at the door and learn how to link your reality to your future. After all, the future is now.

Be part of the 2009 Innovation Survey and win an Amazon Kindle 2 Device

As a Knowledge Sponsor for the 2009 World Innovation Forum, Capgemini is working to help executives identify what it takes to be a successful innovator in challenging economic times like these.

We are currently conducting an Innovation Survey benchmarking activities and results with executives in multiple industries. By participating in this survey, you will be an important part of this benchmarking effort and learn where your business stands compared to the market. This short survey should take less than 10 minutes to complete.

In addition, to thank you for completing the survey, respondents may enter into a drawing to win an Amazon Kindle 2, a market changing and innovative device for 2009. Also, if you would like to receive a copy of the final report, please provide your contact information at the end of the survey.

To participate in the 2009 Innovation Survey, please visit:

www.wifny.com/survey

Back Off The Bonuses

    If I see one more indignant op-ed  about AIG’s recent payout of $160 million in bonuses, I’m going to scream.  While taxpayers are justifiably concerned about how federal bailout money is being spent, there are three glaring reasons why all this populist outrage is entirely unjustified.

    First, $160 million in bonuses is less than 1/100 of a percent of the $170 billion that AIG has received in government funds; the compensation packages accounts for only a tiny fraction of the bailout package. 

    One must also consider the size of AIG when examining the bonus figures.  At the end of 2008, AIG had 116,000 employees – that amounts to an average bonus of $1,379 per worker .  Is this so unreasonable? 

    Lastly, if the government limits compensation, AIG will lose its ability to stay competitive.  What will happen when a career AIG employee who has made $500,000 in total compensation each year over the last five years from a $100,000 base salary and a $400,000 bonus is suddenly told that he will receive no bonus, that his pay has been cut by 80%?  He will quit, and go to a company that will pay him a competitive wage.  Without bonuses, AIG’s most talented and experienced employees  will  flee the firm for its competitors. 

    The folly of nationalization is clear in this uproar over the AIG bonuses.  If citizens and the government do not allow AIG to operate competitively in the marketplace, it will stay the steward of the government, sucking up federal funds while competitors steal skilled employees and with them, business.  I urge the media and the American populace to back off the bonuses, and allow the stimulus package to work as it was supposed to, giving companies the ability to operate freely, unconstrained by capital limitations.

Brian Goldstein

 

Free Webinar with Strategy and Innovation expert Vijay Govindarajan

This 1 hour Free Webinar organized by HSM features World Innovation Forum  (#WIF09) Speaker Vijay Govindarajan, one of the world’s leading experts on strategy and innovation and the bestselling author of "10 Rules for Strategic Innovators: From Idea to Execution" (Harvard Business School Press)

When: Wednesday March 18, 2009
Time: 1:00 PM Eastern / 10:00 AM Pacific
Cost: Free

Register for this Free webinar by clicking on this link

At the end of this session, participants will develop a framework to answer the following questions:

1. Why do companies need to continuously innovate strategically?

2. How can firms identify market discontinuities that shape the future evolution of the industry?

3. How can firms exploit accelerating global opportunities, as a result of the discontinuous shifts in the marketplace?

4. How can firms build the requisite organizational DNA to create the future while managing the present?

5. How do you execute breakthrough strategies?

The World Innovation Forum is being held on May 5-6, 2009 at the Nokia Theatre in New York City. For more information on the event, please visit the official event website at www.wifny.com or call HSM Toll-Free at 866-711-4476 (international callers dial 212-317-8454)

Don Peppers has confirmed as a featured blogger at World Innovation Forum 2009

Don Peppers of Peppers and Rogers group, author of Rules to Break and Laws to Follow and the Strategy Speaks Blog has confirmed to participate as a featured blogger for the World Innovation Forum 2009 event on May 5-6 at the Nokia Theatre in New York City.

Don Peppers and Martha Rogers Ph.D. invented one-to-one business strategy over 15 years ago. Today, they are recognized gurus, acclaimed authors and globally sought-after speakers.

To find out more about Don Peppers, check out Rules to Break and Laws to Follow and visit the Strategy Speaks Blog at:

http://www.peppersandrogersgroup.com/blog/