Chris Dixon

Google recently added a caustic warning message when users attempt to export their Google Contacts to Facebook:

Hold on a second. Are you super sure you want to import your contact information for your friends into a service that won’t let you get it out?

Facebook allows users to download their personal information (photos, profile info, etc) but has been fiercely protective of the social graph (you can’t download friends, etc). The downloaded data arrives in a .zip file – hardly a serious attempt to interoperate using modern APIs (update: Facebook employee corrects me/clarifies in comments here). In contrast, Google has taken an aggressively open posture with respect to the social graph, calling Facebook’s policy “data protectionism.”

The economic logic behind these positions is a straightforward application of Metcalf’s law, which states that the value of a network is the square of the number of nodes in the network*.  A corollary to Metcalf’s law is that when two networks connect or interoperate the smaller network benefits more than the larger network does. If network A has 10 users then according to Metcalf’s law its “value” is 100 (10*10).   If network B has 20 users than it’s value is 400 (20*20). If they interoperate, network A gains 400 in value but network B only gains 100 in value. Interoperating is generally good for end users, but assuming the two networks are directly competitive – one’s gain is the other’s loss – the larger network loses.

A similar network interoperability battle happened last decade among Instant Messaging networks. AIM was the dominant network for many years and refused to interoperate with other networks. Google Chat adopted open standards (Jabber) and MSN and Yahoo were much more open to interoperating. Eventually this battle ended in a whimper — AIM never generated much revenue, and capitulated to aggregators and openness.  (Capitulating was probably a big mistake – they had the opportunity to be as financially successful as Skype or Tencent).

Google might very well genuinely believe in openness. But it is also strategically wise for them to be open in layers that are not strategic (mobile OS, social graph, Google docs) while remaining closed in layers that are strategic (search ranking algorithm, virtually all of their advertising services).

When Google releases their long-awaited new social network, Google Me, expect an emphasis on openness. This could create a rich ecosystem around their social platform that could put pressure on Facebook to interoperate. True interoperability would be great for startups, innovation, and – most importantly – end users.

* Metcalf’s law assumes that every node is connected to every node and each connection is equally valuable. Real world networks are normally not like this. In particular, social networks are much more clustered and therefore have somewhere between linear and exponential utility growth with each additional user.

I never had the opportunity to invest in YouTube but I have to admit that if I did I probably would have passed (which of course would have been a huge mistake). I’d been around the web long enough to remember the dozens of companies before YouTube that tried to create crowdsourced video sites and failed. Based on “pattern recognition” (a dangerous thing to rely on), I was deeply skeptical of the space.

What I failed to appreciate was that the prior crowdsourced video sites were ahead of their time. YouTube built a great product, but, more importantly, got the market timing just right. By 2005, all the pieces were in place to enable crowdsourced video – the proliferation of home broadband, digital camcorders, a version of Flash where videos “just worked,” copyrighted web content that could be exported to YouTube, and blogs that wanted to embed videos.

Almost anything you build on the web has already been tried in one form or another. This should not deter you. Antecedents existed for Google, Facebook, Groupon, and almost every other tech startup that has succeeded since the dot-com bubble.

Entrepreneurs should always ask themselves “why will I succeed where others failed?” If the answer is simply “I’m doing it right” or “I’m smarter,” you are probably underestimating your antecedents, which were probably run by competent or even great entrepreneurs who did everything possible to succeed. Instead your answer should include an explanation about why the timing is right – about some fundamental changes in the world that enable the idea you are pursuing to finally succeed. If the necessary conditions were in place, say, a year ago, that might still be ok – YouTube happened to nail their product out of the gate, but if they hadn’t a company started later might have succeeded in their place.

Often the necessary conditions are only beginning to emerge and knowing when they will do so sufficiently is very hard to predict. We all know the internet will become fully social, personalized, mobile, location-based, interactive, etc. and lots of new, successful startups will be built as a result. What is very hard to know is when these things will happen at scale.

One way to mitigate timing risk is to manage your cash accordingly. If you are trying to ride existing trends you should ramp up aggressively. If you are betting on emerging trends it is better to keep your burn low and runway long.  This takes discipline and patience but is also the way you hit it really big.