10 November 2011

Infographic: Diffusion of Social Networks — Facebook, Twitter, LinkedIn and Google+

Social networking market

They say a picture's worth a thousand words and much digital ink has been spilled recently on impressive sounding (yet relatively unimpressive) user counts, so here's an infographic showing the diffusion of social networks as at last month to put things in perspective.

There are 7 billion people on the planet, of which 2 billion are on the Internet. Given Facebook are now starting to make inroads into the laggards (e.g. parents/grandparents) with 800 million active users already under their belt, I've assumed that the total addressable market (TAM) for social media (that is, those likely to use it in the short-medium term) is around a billion Internet users (i.e. half) and growing — both with the growth of the Internet and as growing fraction of Internet users. That gives social media market shares of 80% for Facebook, 20% for Twitter and <5% for Google+. In other words, Twitter is 5x the size of Google+ and Facebook is 4x the size of Twitter (e.g. 20x the size of Google+).

It's important to note that while some report active users, Google report total (e.g. best case) users — only a percentage of the total users are active at any one time. I'm also hesitant to make direct comparisons with LinkedIn as while everyone is potentially interested in Facebook, Twitter and Google+, the total addressable market for a professional network is limited, by definition, to professionals — I would say around 200 million and growing fast given the penetration I see in my own professional network. This puts them in a similar position to Facebook in this space — up in the top right chasing after the laggards rather than the bottom left facing the chasm.

Diffusion of innovations

The graph shows Rogers' theory on the diffusion of innovations, documented in The Innovator's Dilemma, where diffusion is the process by which an innovation is communicated through certain channels over time among the members of a social system. There are 5 stages:
  1. Knowledge is when people are aware of the innovation but don't know (and don't care) about it.
  2. Persuasion is when people are interested in learning more.
  3. Decision is when people decide to accept or reject it.
  4. Implementation is when people employ it to some degree for testing (e.g. create an account).
  5. Confirmation is when people finally decide to use it, possibly to its full potential.
I would suggest that the majority of the total addressable market are at stage 1 or 2 for Google+ and Twitter, and stage 4 or 5 for Facebook and LinkedIn (with its smaller TAM). Of note, users' decisions to reject an innovation at the decision or implementation phase may be semi-permanent — to quote Slate magazine's Google+ is Dead article, "by failing to offer people a reason to keep coming back to the site every day, Google+ made a bad first impression. And in the social-networking business, a bad first impression spells death." The same could be said for many users of Twitter, who sign up but fail to engage sufficiently to realise its true value. Facebook, on the other hand, often exhibits users who leave only to subsequently return due to network effects.

Social networking is also arguably a natural monopoly given, among other things, dramatically higher acquisition costs once users' changing needs have been satisfied by the first mover (e.g. Facebook). Humans have been using social networking forever, only until recently it's been manual and physiologically limited to around 150 connections (Dunbar's number, named after British anthropologist Robin Dunbar). With the advent of technology that could displace traditional systems like business cards and rolodexes came a new demand for pushing the limits for personal and professional reasons — I use Facebook and LinkedIn extensively to push Dunbar's number out an order of magnitude to ~1,500 contacts for example, and Twitter to make new contacts and communicate with thousands of people. I don't want to maintain 4 different social networks any more than I want to have to search 4 different directories to find a phone number — I already have 3 which is 2 too many!

Rogers' 5 factors

How far an innovation ultimately progresses depends on 5 factors:
  1. Relative Advantage — Does it improve substantially on the status quo (e.g. Facebook)?
  2. Compatibility — Can it be easily assimilated into an individual's life?
  3. Simplicity or Complexity — Is it too complex for your average user?
  4. Trialability — How easy is it to experiment?
  5. Observability — To what extent is it visible to others (e.g. for viral adoption)
Facebook, which started as a closed community at Harvard and other colleges and grew from there, obviously offered significant relative advantage over MySpace. I was in California at the time and it seemed like everyone had a MySpace page while only students (and a few of us in local/company networks) had Facebook. It took off like wildfire when they solved the trialability problem by opening the floodgates and a critical mass of users was quickly drawn in due to the observability of viral email notifications, the simplicity of getting up and running and the compatibility with users' lives (features incompatible with the unwashed masses — such as the egregiously abused "how we met" form — are long gone and complex lists/groups are there for those who need them but invisible to those who don't). Twitter is also trivial to get started but can be difficult to extract value from initially.

Network models

Conversely, the complexity of getting started on Google+ presents a huge barrier to entry and as a result we may see the circles interface buried in favour of a flat "follower" default like that of Twitter (the "suggested user list" has already appeared), or automated. Just because our real-life social networks are complex and dynamic does not imply that your average user is willing to invest time and energy in maintaining a complex and dynamic digital model. The process of sifting through and categorising friends into circles has been likened to the arduous process of arranging tables for a wedding and for the overwhelming majority of users it simply does not offer a return on investment:
In reality we're most comfortable with concentric rings, which Facebook's hybrid model recently introduced by way of "Close Friends", "Acquaintances" and "Restricted" lists (as well as automatically maintained lists for locations and workplaces — a feature I hope gets extended to other attributes). By default Facebook is simple/flat — mutual/confirmed/2-way connections are "Friends" (though they now also support 1-way follower/subscriber relationships ala Twitter). Concentric rings then offer a greater degree of flexibility for more advanced users and the most demanding users can still model arbitrarily complex networks using lists:
In any case, if you give users the ability to restrict sharing you run the risk of their actually using it, which is a sure-fire way to kill off your social network — after all, much of the value derived from networks like Facebook is from "harmless voyeurism". That's why Google+ is worse than a ghost town for many users (including myself, though as a Google Apps users I was excluded from the landrush phase) while being too noisy for others. Furthermore, while Facebook and Twitter have a subscribe/follow ("pull") model which allows users to be selective of what they hear, when a publisher shares content with circles on Google+ other users are explicitly notified ("push") — this is important for "observability" but can be annoying for users.

Nymwars

The requirement to provide and/or share your real name, sex, date of birth and a photo also presents a compatibility problem with many users' expectations of privacy and security, as evidenced by the resulting protests over valid use cases for anonymity and pseudonymity. For something that was accepted largely without question with Facebook, the nymwars appear to have caused irreparable harm to Google+ in the critically important innovator and early adopter segments, for reasons that are not entirely clear to me. I presume that there is a greater expectation of privacy for Google (to whom people entrust private emails, documents, etc.) than for Facebook (which people use specifically and solely for controlled sharing).

Adopter categories

Finally, there are 5 classes of adopters (along the X axis) varying over time as the innovation attains deeper penetration:
  1. Innovators (the first 2.5%) are generally young, social, wealthy, risk tolerant individuals who adopt first.
  2. Early Adopters (the next 13.5%) are opinion leaders who adopt early enough (but not too early) to maintain a central communication position.
  3. Early Majority (the next 34%, to 50% of the population) take significantly longer to adopt innovations.
  4. Late Majority (the next 34%) adopt innovations after the average member of society and tend to be highly sceptical.
  5. Laggards (the last 16%) show little to no opinion leadership and tend to be older, more reclusive and have an aversion to change-agents.
I've ruled out wealth because while buying an iPhone is expensive (and thus a barrier to entry), signing up for a social network is free.

The peak of the bell curve is the point at with the average user (e.g. 50% of the market) has adopted the technology, and it is very difficult both to climb the curve as a new technology and to displace an existing technology that is over the hump.

The Chasm

The chasm (which exists between Early Adopters and Early Majority i.e. at 16% penetration), refers to Moore's argument in Crossing the Chasm that there is a gap between early adopters and the mass market which must be crossed by any innovation which is to be successful. Furthermore, thanks to accelerating technological change they must do so within an increasingly limited time for fear of being equaled by an incumbent or disrupted by another innovation. The needs of the mass market differ — often wildly — from the needs of early adopters and innovations typically need to adapt quickly to make the transition. I would argue that MySpace, having achieved ~75 million users at peak, failed to cross the chasm by finding appeal in the mass market (ironically due in no small part to their unfettered flexibility in customising profiles) and was disrupted by Facebook. Twitter on the other hand (with some 200 million active users) has crossed the chasm, as evidenced by the presence of mainstream icons like BieberSpears and Obama as well as their fans. LinkedIn (for reasons explained above) belongs at the top right rather than the bottom left.

Disruptive innovations

The big question today is whether Google+ can cross the chasm too and give Facebook a run for its money. Facebook, having achieved "new-market disruption" with almost a decade head start in refining the service with a largely captive audience, now exhibits extremely strong network effects. It would almost certainly take another disruptive innovation to displace them (that is, according to Clayton Christensen, one that develops in an emerging market and creates a new market and value network before going on to disrupt existing markets and value networks), in the same way that Google previously disrupted the existing search market a decade ago.

In observing that creating a link to a site is essentially a vote for that site ("PageRank"), Google implemented a higher quality search engine that was more efficient, more scalable and less susceptible to spam. In the beginning Backrub Google was nothing special and the incumbents (remember Altavista?) were continuously evolving — they had little to fear from Google and Google had little to fear from them as it simply wasn't worth their while chasing after potentially disruptive innovations like Backrub. They were so disinterested in fact that Yahoo! missed an opportunity to acquire Google for $3bn in the early days. Like most disruptive technologies, PageRank was technologically straightforward and far simpler than trying to determine relevance from the content itself. It was also built on a revolutionary hardware and software platform that scaled out rather than up, distributing work between many commodity PCs, thus reducing costs and causing "low-end disruption". Its initial applications were trivial, but it quickly outpaced the sustaining innovation of the incumbents and took the lead, which it has held ever since:

Today Facebook is looking increasingly disruptive too, only in their world it's no longer about links between pages, but links between people (which are arguably far more valuable). Last year while working at Google I actively advocated the development of a "PageRank for people" (which I referred to as "PeopleRank" or "SocialRank"), whereby a connection to a person was effectively a vote for that person and the weight of that vote would depend on the person's influence in the community, in the same way that a link from microsoft.com is worth more than one from viagra.tld (which could actually have negative value in the same way that hanging out with the wrong crowd negatively affects reputation). I'd previously built what I'd call a "social metanetwork" named "meshed" (which never saw the light of day due to cloud-related commitments) and the idea stemmed from that, but I was busy running tape backups for Google, not building social networks on the Emerald Sea team.

With the wealth of information Google has at its fingertips — including what amounts to a pen trace of users' e-mail and (courtesy Android and Google Voice) phone calls and text messages — it should have been possible for them to completely automate the process of circle creation, in the same way that LinkedIn Maps can identify clusters of contacts. But they didn't (perhaps because they got it badly wrong with Buzz), and they're now on the sustaining innovation treadmill with otherwise revolutionary differentiating features being quickly co-opted by Facebook (circles vs lists, hangouts vs Skype, etc).

Another factor to consider is that Google have a massive base of existing users in a number of markets that they can push Google+ to, and they're not afraid to do so (as evidenced by its appearance in other products and services including AndroidAdWords, BloggerChrome, Picasa, MapsNewsReader, TalkYouTube and of course the ubiquitous sandbar and gratuitous blue arrow which appeared on Google Search). This strategy is not without risk though as if successful it will almost certainly attract further antitrust scrutiny, in the same way that Microsoft found itself in hot water for what was essentially putting an IE icon on the desktop. Indeed I had advocated the deployment of Google+ as a "social layer" rather than isolated product (ala the defunct Google Buzz), but stopped short of promoting an integrated product to rival Facebook — if only to maintain a separation of duties between content production/hosting and discovery.

The solution

While I'm happy to see some healthy competition in the space, I'd rather not see any of the social networks "win" as if any one of them were able to cement a monopoly then us users would ultimately suffer. At the end of the day we need to remember that for any commercial social network we're not the customer, we're the product being sold:
As such, I strongly advocate the adoption of open standards for social networking, whereby users select a service or host a product that is most suitable for their specific needs (e.g. personal, professional, branding, etc) which is interoperable with other, similar products.

What we're seeing today is similar to the early days of Internet email, where the Simple Mail Transfer Protocol (SMTP) broke down the barriers between different silos — what we need is an SMTP for social networking.

References:
Sources:
  • Facebook: 800 million users (active) [source]
  • Twitter: 200 million users (active) [source]
  • LinkedIn: 135 million users (total) [source]
  • MySpace: 75.9 million users (peak) [source]
  • Google+: 40 million users (total) [source]

12 comments:

  1. Do you not think that Open Social might be t he SMTP for Social Networking?

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  2. I was going to reference OpenSocial but I'm unconvinced any of the existing solutions (and indeed, any solution that *requires* the support of the incumbents) is going to be successful, and I wonder if it's not already dead: https://www.google.com/search?q=opensocial+dead

    ActivityStreams is another standard^W specification that I'm interested in, but there doesn't seem to be much life over there either.

    I'm looking for something so simple it doesn't even look useful — otherwise we'll never get anyone to adopt it. Once you have a toe in the door for basic functionality (e.g. references between different profiles) you can extend from there.

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  3. Grin - I was worried you'd say that. OpenSocial might end up being another adoption train case study

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  4. Good post Sam, enjoyed where you're heading with this - there are a number of areas I'd suggest revision on but I'll focus on one - diffusion.

    First, the curve is cumulative adoption vs time (x-axis), the categories of early to late adopter are simply layered over this i.e. x-axis is time.

    Second, the cumulative adoption is often converted to MaSh where the MaSh is of the addressable market of that activity i.e. for a product (e.g. a specific make of digital camera) it is the total final market for that specific product. For an activity it is the total addressable market for that activity (i.e. digital cameras).

    Hence,if you're plotting out social media then it is the entire addressable market for social media. So if the end market for social media is say 5 billion and the current market at 1 billion then it is at the 20% layer - i.e. just entering early majority.

    Now for a specific instance of an activity i.e. Facebook then it's final end market may be much lower than the total addressable market. From the above graph you have Facebook in the late majority stage which implies that Facebook is coming to an end of life despite social media being in the early majority stage. This may or may not be your intention.

    I suspect it is not because what you've done is taken MaSh for the current market and used that to plot where the companies are. This is incorrect. You're mixing relative positions in today's market against diffusion of either a specific instance (i.e. facebook) of an activity or the activity itself (i.e. social media).

    To complicate matters, there's no single S-Curve for diffusion as its a time based series i.e. some are stretched, some are compressed when the same time axis is used.

    So, Linkedin and Facebook being instances of an activity (social media) may well have different addressable markets (as you point out) and different rates of diffusion - i.e. they're not on the same curve - but the activity itself (social media) will be on a third curve and over a longer time frame. For example, in 20 years from now Social Media may have diffused to every part of the world but LinkedIn / Facebook may have well having achieved their individual total markets much earlier or even disappeared.

    So, you'd end up with three diffusion curves - one each for the services of Facebook and Linkedin, with a third for the diffusion of social media itself.

    Now, obviously you want to focus on the diffusion of the activity itself (i.e. social media) which is a basis for your arguments here.

    Unfortunately you've layered over this the current relative MaSh of different instances, to portray an image which is not actually correct.

    So, like the post. Only major grumble are

    1. X-axis is time, should be at least labelled.
    2. You've layered over current MaSh onto a graph which is about the diffusion of the activity (Social Media) or you've combined three or more separate graphs (i.e. instances plus activity) into one.

    Hope that helps.

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  5. So I think it makes more sense to assess the market as it is today, rather than to say "ok there's 7 billion on the planet so the TAM for the Internet is in the order of 7 billion, not 2 billion — as is the TAM for social networking". Sure you could animate the entire graph itself over another dimension (time), but as at today, given the profile of users who are signing up to the services (early adopters for Google+, late majority/laggards for Facebook) I think this is a more accurate portrayal than one that pushes everything to the left.

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  6. I've thought about this some more and think dependencies are ok — to use another analogy, one should factor in the availability of electricity when considering the total addressable market for television.

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  7. Good post Sam, you make some interesting points.

    I have to disagree, however, with some key aspects of the graphic you show:

    1. Market Share is defined arbitrarily. There are many ways to slice a market. I don’t think it is accurate to say the Tam for social media is only half of internet users. Social media is a primary use case for the internet. It is more accurate to say Facebook’s market share is about 40%. Still impressive, and the advantage over Google+ or MySpace is still the same. Proof of this is the use of other social networks such as Orkut (hugely popular in Brazil) and the many people who have opted not to have a Facebook profile – or have deleted their profile after using it for some time as I see as a more common case.

    2. LinkedIn is not going for the same market. It is clearly positioned as a social network for professionals, their TAM is much smaller than the 2 billion internet users. I don’t know how many “professionals” exist in the world – but my point is LinkedIn does not belong in the same chart as MySpace if you are talking about market share. Arguably, their market share could be even bigger than Facebook, even though other professional networks (such as Xoom) are popular in certain regions.

    3. Contrary to what your chart shows, I think we would all agree LinkedIn has clearly “crossed the chasm”. I don’t know many professionals without a LinkedIn account (“Laggards”).

    4. Last, it is dangerous to use a framework like Geoffrey Moore’s chasm to depict market trends. My Space is shown as bigger than Goole+. The chart could be interpreted as if MySpace is further in a trajectory to cross the chasm. It would be more accurate to show a lifecycle model to illustrate the decline of MySpace and the rapid growth of Google+

    I don’t think Google+ has crossed the chasm, as there is still a risk it will crash before gaining momentum. As you point out, the network effect behind Facebook is a formidable challenge, even for Google. I would only add that many of the Google+ members are influencers who could sway the market quickly.

    Again, I agree with many of your assessments, just wanted to offer a different point of view on certain aspects of the chart.

    Cheers

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  8. @Marketing Guy: Thanks for taking the time to give some feedback.

    1. I'm not sure how better to define market size — as I explained the main factor I used was that Facebook is catching the late adopters/laggards (e.g. parents/grandparents, people who were initially negative about it, etc.). I also considered that Google+ is very much an innovator tool and hasn't really even made much progress with the early adopter market... same could be said for MySpace which was older but died young. Finally Twitter is just now crossing over into the mainstream. Between these data points the curve matches nicely, and while one could argue I should be looking at a wider TAM I don't think there will ever be a time where *every* Internet user is a potential social media user. Consider for example, those that use the Internet for specific tasks (e.g. paying bills, work, etc.) and have no interest in doing anything else with it.

    2. I did explain that "the total addressable market for a professional network is limited, by definition, to professionals — I would say around 200 million", but you're right, perhaps I should have made this clearer on the graph itself.

    3. "This puts [LinkedIn] in a similar position to Facebook in this space — up in the top right chasing after the laggards rather than the bottom left facing the chasm."

    4. If you look closely MySpace is greyed out. I think its position is appropriate today, but at the time the TAM for the (new) social media market would have been much lower. I think it's telling that Google+ today is about half the size of MySpace in its prime — that's the point.

    All in all I agree with contention over the total addressable market, and if anything I may have lowballed it slightly (1 billion rather than, say, 1.5 billion, but definitely not 2 billion). In any case Facebook is still over the hump and with a larger TAM the other guys are even further over to the left — Twitter hasn't even crossed the chasm but I think is certainly has for reasons explained above.

    To visualise this properly we would need to add another time axis and animate it over time to show the changing TAM — different logos would move up and down depending on their rate of adoption vs market size as a given point in time. I'm not too bothered about this though as it would be hard to do with any amount of accuracy and what I was looking for was a point in time analysis.

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  9. Sam, I know what you're trying to say, couple of things to note :-

    Diffusion curves are fundamentally about the how something diffuses over time (hence the x-axis of time). Those labels at the bottom i.e. early majority refer to the area under the adoption curve.

    Activities (i.e. social media) and instances of activities (i.e. facebook) are not necessarily on the same diffusion curve i.e. social media is probably only just entering the early majority stage of a diffusion curve spanning a considerable period of time and with a significant final total market.

    This is no different from the diffusion of the automobile (a long time span) and the diffusion of specific instances (i.e. the mini). You can rarely mix and match diffusion curves of activities themselves with instances of those activities.

    If you're mapping out position based upon current relative MaSh of instances of an activity, you're potentially painting a misleading picture i.e. consider the Ford Model T motor car. It owned a majority MaSh in its current market but that market was still at early stages i.e. you can't simply use relative current market share as a method of determining how diffused an activity is. What you're doing is mixing Market Share which for a diffusion curve is % share of total market saturation with relative market share

    Now, you can make the argument that relative MaSh is suitable when dealing with a saturated market and examining replacement of one instance of an activity with another i.e. a product vs a new and improved product.

    So if you're arguing that Facebook users today are the late majority because it owns a high MaSh in a saturated market - then that is fine. Many will debate that.

    But be wary of mixing relative current MaSh with the % market saturation concepts of diffusion.

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  10. I think if you were to rank people and somehow had a score of their value, then correspond that to level of interaction, LinkedIn probably already has a much more valuable total network than facebook.
    Facebook is increasingly becomig an outlet for social outcasts rather than a supplement to real life social networks/interactions.
    Google+ would be successful if you could transfer you facebook data with one ckic. Why does that not work again?

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  11. Google discovered a simple but elegant solution to the problem after blocking Facebook (long after the horse had bolted) from importing Gmail contacts — reciprocity: http://techcrunch.com/2010/11/04/facebook-google-contacts/

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