A couple years ago, I heard Eric Schmidt say something that really bothered me. He was giving a speech at the Stanford Entrepreneurship conference, advising would-be entrepreneurs on how to create a sustainable company. One piece of advice was to create a "network effect," or a huge network of people using your system in a way that makes the network ever-more valuable as more people join it.
The concept of network effect was conceived by Bob Metcalf.
What bothered me was that this is dangerously close to the idea of locking in your customers. Microsoft is used to locking in customers, a big key to its success. As more people used Windows, applications developers had to write programs for that OS, which made it more useful for end users to stick with that OS. It's called a "virtuous cycle."
The thing is, as it's usually applied, it's not very virtuous. When people become locked in to a product, the company making that product doesn't have to work hard to keep them happy. They can't leave anyway, so the supplier doesn't have the motivation of being paranoid that customers might leave. It made Microsoft a huge company, but it lost touch with its customers. Ease of use was sacrificed to the gods of lock-in.
But I was pleased to talk to someone close to Google recently who says that lock-in is forbidden at the company. The right kind of network effect is that seen at YouTube. It has the most videos, so it's the first place you go to find videos.
The internet smacks the concept of lock-in out of contention. If Google gets lazy with YouTube and others come up with a better system, people will migrate. It's too easy to pack up and more to a new site.
I think Yahoo is still dedicated to the idea of lock-in. It wants its "community" of users to become so dependent on its services that they never leave. Email (whether from Google or Yahoo or Microsoft) has a natural lock-in effect. It's too hard to inform everyone of your new email address.
But Yahoo is trying to create something of a gated community, with original content and other services, the way HBO made the transition from just airing movies made by others to creating its own films and programs.
That's great on the limited medium of television, where there are still only so many channels you can get. But it doesn't work on the internet, with virtually infinite bandwidth.
Google was the first search engine that didn't try to be a portal and lock people in. It happily sends people to other sites, if they have the best content or services.
But I still worry that it will lose this dedication as it offers more and more services of its own. Google used to happily send people to Yahoo Finance before it came out with a competing service. Does it still do so? I just don't know. But I'd like to find out.
Other secrets from Google: