Sean Parker argued that network companies like Facebook, Twitter, eBay, and Apple will dominate the future internet over information companies like Google. He explained that network companies derive their core value from facilitating connections between users, rather than just collecting user data. This makes them prone to "network effects" where their value increases exponentially as more users join. As a result, network markets often tip towards a single dominant player. Parker predicted that over the next decade, the aggregate value of emerging network companies will grow to dominate the internet economy.

1. The New Era of
the Network
Service
the Network
Service
Sean Parker
Web 2.0 Summit
October 22,
2009

2. the Network
Service
the Network
Service like Facebook,
Why companies
Twitter, Ebay and Apple (but not
Google) will determine the future
of the internet

3. Companies that Harness
the power of networks
will dominate the
internet
COLLECTING DATA IS
LESS VALUABLE THAN
CONNECTING PEOPLE

4. WHAT ARE NETWORK
EFFECTS?
“When the value of a
product to one user
depends on how many
other users there are.”
- Shapiro, Varian

5. THE POWER OF
NETWORKS
• 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

6. THE POWER OF NETWORKS
• Network effects produce
winner-take-all markets
• The big get bigger

7. METCALFE’S LAW
value
increases
with n 2

8. METCALFE’S LAW
value
increases
with n 2

9. METCALFE’S LAW
value
increases
with n 2

10. METCALFE’S LAW
Potential Value of Network
increases with n 2
Size of Network (n)

11. WHAT IS A NETWORK
COMPANY?
Basic unit of value for a network
company is not the data it stores, it’s
the number of connections it facilitates
Communicat
ion
Marketplace Networks Games Platforms
s Facebook World of Warcraft Apple iPhone
eBay Twitter Zynga Facebook
Craigslist Skype ForSquare
LinkedIn

12. 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

13. • Craigsli
st
• MySpac
e
• AIM
• Ebay
THE BEST PRODUCT DOESN’T
ALWAYS WIN

14. A NATURAL MONOPOLY:
EBAY
Registered Users (MM)
Source: Company Filings

15. A NATURAL MONOPOLY:
EBAY
Registered Users (MM)
Source: Company Filings

16. “A MONKEY COULD RUN THIS
BUSINESS”

17. WHY DID EBAY BUY
SKYPE?
Purchase Price in 2005:
$ .6
2B
•75mm Registered
•$70mm Revenue
Purchase Price 2009: ?
•521mm Registered
•$740mm Annualized
Revenue
Source: Company Filings

18. 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

19. THE FALL OF FRIENDSTER
Search Index Volume
Source: Google Trends
2004

20. FACEBOOK VS. MYSPACE
Unique Visitors (MM)
Source: comScore Media Metrix

21. 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

22. Tactical Facebook
Schools Schools
Facebook
Southwestern Berkeley
Baylor
Texas A&M Schools
Columbia
Berkeley
Enemy Schools UTA Berkeley
Cornell
Columbia
Baylor Cornell
Dartmouth
Columbia Harvard
Dartmouth
Stanford Stanford
Harvard
Yale
Stanford
Yale
Yale
CAMPUS WARFARE

23. BATTLE FOR GERMANY

24. BATTLE FOR GERMANY
Unique Visitors (MM)
Source: comScore Media Metrix

25. BATTLE FOR GERMANY
Search Index Volume
Source: Google Trends

26. 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.

27. GOOGLE DOESN’T OWN
NETWORKS
NETWORK INFORMATIO
N
SERVICES SERVICES
• AdSense • AdWords
• Dodgeball(?) • Gmail
• Orkut • Search
• Google Talk(?), • Maps, etc.
Wave(?)

28. 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

29. The New Era of
the Network
Service
the Network
Service
Sean Parker
Web 2.0 Summit
October 22,
2009