Brad Fitzpatrick, creator of LiveJournal, has an interesting blog post about portability of the ’social graphs’ of social networking sites like Facebook and MySpace. What is a social graph? In maths, a graph can refer to a network of ‘nodes’ and the connections between these nodes. That’s what social networking sites create, through the networks of friends that people build up. The members of the sites are the nodes, and they’re linked to other members through their sets of friends, and the whole thing is the ‘graph’ of the site. This graph is the basic asset of social networking sites, since belonging to such a site is next to useless if it doesn’t allow you to ‘connect’ to people.

As Brad explains, it’s a pain for people to have to build up their networks on many different sites. It’s tiring to add all my friends on Facebook, and then have to add them again on some other site for some other purpose. Brad suggests that this is preventing new social networking sites from getting established, because the cost to build up a network on multiple sites is too high for users, and because a site with a small graph (ie few members) isn’t very attractive to new users.

In economics terms, social networking sites are classic examples of services that exhibit ‘network effects’, where the value of the service increases with the number of its users. In such markets, entry by new firms can be difficult, because established firms have already built up their networks, making them more attractive to users. The newcomers can try to overcome this barrier by providing a superior service, or differentiating themselves from the existing firms in some way, but everything else equal it’s arguably going to be more difficult to enter the social networking market than, say, the market for pencils.

What Brad is really talking about is making the networks that the sites have established ‘compatible’ between sites. So if you join one site then you’ve effectively joined them all. This removes the size of the network as a differentiating factor between sites and will make it easier for newcomers to enter. There are a couple of economic effects that will underlie the decisions of the social networking sites to go along with this or not.

First, compatibility may be desirable because it weakens competition between networks, resulting in higher profits. Social network sites don’t (at the moment) charge prices for membership, but the way they compete is in the features that they provide to users. It’s expensive for the sites to develop nice user interfaces and other features that people want. More features equals a lower price, in some sense. Reducing features will result in losing some users, but will save the site some money. With compatibility, if a site reduces its features and loses some users to a competing site, its remaining users will still be able ‘connect’ to those who switched, and so the value of the site to the remaining users doesn’t change. Thus the ‘punishment’ that the site faces for reducing its features is weaker with compatibility. This will lead to compatible sites implementing fewer features, and presumably making higher profits. That’s not necessarily bad for users though, as the benefits of being able to connect to a larger network that compatibility brings might outweigh the losses from reduced features.

So compatibility may be desirable to existing competitors. On the other hand, an existing firm may not want to make its network compatible with a new entrant. Compatibility will weaken the competition as described above if the new firm does enter the market, but no entry may be an even better outcome than entry of a (weak) competitor. However, it’s not always desirable to keep competitors out, if they provide innovative products that expand the size of the market as a whole. In a different context, this perhaps explains why Adobe chose to make the PDF format an open standard and allow competitors to produce PDF-compatible software.

Overall, Brad’s proposal may be a good idea from the point of view of users of social networking sites, provided that the benefits of belonging to a bigger network outweigh any losses from reduced intensity of competition in terms of the features provided to users. But I’m sceptical whether the larger sites like Facebook will accept it. They’ve spent effort and money building up their networks, and unless they see big benefits from market expansion then I doubt they’ll want to establish compatibility with new competitors.