Wallen's

Distribution power vs. network effects

Startable builds today on a WSJ article on Google to discuss about investors and technology entrepreneurs' fear of Google's distribution power:

"The thought among VCs was that, with millions and millions of people viewing the Google search page each day, Google could easily launch and test all sorts of crazy new services, like Google Checkout or Google Finance or Google Base or Gmail. Some of these have really taken off, and with the early(ish) success of Gmail VCs were quaking in our collective boots that Google could easily leverage its distribution power into huge market share for any new product its engineers dreamed of creating.

But maybe Google’s distribtion heft isn’t enough?”

This fear reminds me of our seed fundraising earlier this year when most prospective investors came up with very similar questions.

My answer was that actually Google was the least of my fear: it has failed quite a number of times in the past years trying to compete with start-ups. To name a few, Google's Orkut did not hurt FB nor MySpace. It was successful only in Brazil and India where they were not present yet. Google launched its own YouTube equivalent service... before buying YouTube after the failure of its service. Lively is another recent example, etc. However, iGoogle did compete effectively against Netvibes. The latter had not yet really penetrated the US market and this service has no network effects. Actually, if you look at the list of sucessful services in Startable's post, there is no services with networks effects (except maybe Google Base).

In other words, network effects are an extremely effective barrier to entry against the distribution power of big corporations (... if the latter is slow to come in). Networks effects are not just a Web phenomenon. It's been used in numerous sectors. That's why Google has missed most of the user-generated-content trend.I wonder however why they were systematically so late? Maybe it comes from a "company DNA" skewed towards "the belief in the power of algorithms" (vs. human power)?

Panic at TechCrunch?

The problem of being a journalist is that you need to find stories. I usually appreciate Michael Arrington's post but here is a story that is totally beside the point.

How can one relate directly a financial crisis to a media usage pattern??? Yes, some start-up will go bankrupt, i.e supply goes down. But it does not mean that the entire media usage pattern of the past 10 years will suddenly change, i.e demand is still here.

If one defines web 2.0 (and I'm not fan of lingo) as harvesting collective intelligence, claiming that it is dead is just absurd. Did train usage stop because of 1929 crisis? No. Did TV stop because of 1973 crisis? No. So why would the demand side of the Web "democratization" stop because of an upcoming recession? "Democratization" of all sort of products have been a common pattern over the past century across all industries. A new one has recently emerged in the media industry via the Web. CDOs and CDSs won't stop the demand for this! User generated content will survive this financial crisis.

While I am not sitting in the Silicon Valley, it seems from reading blogs in the past few days that there is a real state of panic currently in the Web industry because of Wall Street events. As I mentioned in a previous post, yes, we will go through rough times. But demands rarely changes dramatically, it usually waits for supply to come... Web 2.0 is alive and is here to stay!