Why are a handful of social networking sites so successful while most attract far fewer users? Right now, MySpace and Facebook are strongly in control of the online social networking market, while all other networking sites attract less total traffic combined. According to Hitwise, MySpace has about 81% of the social network traffic while Facebook holds 10%. First mover advantage was not the deciding factor for these shares, as predecessor Friendster was once on top but has since fallen to a level of marginal competition.

Most people would rather belong to the same social network as all their friends, so the payoff for joining and maintaining a profile on a particular social network increases as that network grows. Most people have a limited amount of time to spend browsing social networking sites, so it is reasonable that they would want to join the site with the largest payoff for time spent online. Users get one-stop-shopping for friends in the largest social networks, so these network effects predict that the most popular networks should balloon with users while others atrophy.

So, what influences put Facebook and MySpace at the top? Fred Stutzman, a Ph.D. student in Information Science at UNC, blogs about the possible causes of Facebook’s early success in his article, “Facebook Critical Success Factors.” Network size must be “jump-started” past a critical tipping point at which payoff for joining the network is greater than the cost of joining (in time, effort, and resources). Since the value of the first person to join Facebook would essentially be zero if nobody else joined, it seems that these early adopters predicted that many of their friends would soon join the service, and signed on board.

Friendster reached its critical tipping point due to its first-mover advantage, but it was soon plagued with technical problems that disillusioned many users. More and more people became unwilling to load the site as load times increased. Friendster did a poor job of managing network load, so negative network externalities such as congestion plagued the site. Its user base dwindled, causing a void that was ready to be filled by Facebook.

A new group of college undergrads sprang up who had never heard of Friendster. Stutzman cites this untapped market as Facebook’s first critical success factor. Facebook became their first social networking experience, and they gravitated to the site because it appealed to their trusted college communities.

We’ve seen that general network effects increase the social utility for all users when someone new joins the network. Paradoxically, a sense of exclusion and entitlement can serve to make a network more desirable, even when adding more users increases the amount of social information available. People gain some satisfaction from smaller, private social groups, organizations, or services. In some cases, the more exclusive a group is, the more excluded people want to join the group.

There is some value to be gained from excluding others. In online communities, smaller social circles can foster a greater level of trust among users. In a network where anybody can join, many users feel that their personal information has a greater chance of falling into the hands of someone they do not trust.

Facebook managed this psychology well with its use of gated networks. You could still feel like you were joining a special club (your prestigious university’s network) while gaining the benefit of having friends from other networks join the service. Stutzman argues that this handling of privacy was another feature that vaulted Facebook to the top.

Not only did Facebook arrive on the market at the perfect time and appeal to the psychology of college undergrads, it also delivered on speed and features that far surpassed Friendster. Stutzman writes that Facebook’s dual use as a social networking cite and a college directory contributed directly to its success.

So, the popularity of Facebook skyrocketed among college students as network effects and information cascade took over. Even people who didn’t have an Instant Messaging screen name before began signing up for Facebook profiles. People without Facebook found themselves out of the social loop as communication about events and people switched from word-of-mouth to Facebook announcements.

As users create a complex web of friendships, event postings, communication, and photo uploads on Facebook, they effectively become locked in to the service. According to the Wikipedia article on network externalities, such de facto lock-in can result in “provider complacency” - since there are few major competitors, Facebook is free to make changes that benefit it at the expense of users.

In a competitive market, users could simply switch providers if an unpopular change occurred, but since Facebook has network lock-in, the usual result of change is a vocal complaint that gradually dies down. An example of such an unpopular change was the Facebook “news feed” feature that broadcasted updates to friends’ profiles. This feature greatly benefits Facebook, because it increases site addiction by encouraging users to log on frequently and check the feed. These frequent log-ons translate to advertisement revenue. However, users were angered because they felt that their information was being beamed out across the network. Soon after more advanced privacy measures were implemented, many more users began restricting the amount of information available to others.