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Network Effects

By Matthew Yglesias  

"Network Effects"

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Chris Beam has a neat article about Campus Network, a similar to Facebook social networking site that launched at Columbia slightly before Facebook launched at Harvard. It was ahead of the Facebook curve in terms of features but wasn’t quite as well designed and ultimately its business expansion didn’t work out.

It’s an interesting story in its own terms, but in some ways its real import is part of what it tells us about the economics of the digital world. Being on Facebook is useful because other people are on Facebook. Consequently, when two similar products launch one winds up completely burying the other. So the best campus-based social networking website to launch in 2004 becomes a multi-billion dollar idea while the second-best one turns out to be a zero dollar idea. But that’s not because Mark Zuckerberg is “a billion times better” than Adam Goldberg at anything. Small initial differences lead to hugely disparate outcomes not particularly because of merit or malfeasance but simply because the business has a winner take all logic.

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