Web 2.0: Sean Parker on why Facebook will win, and Google will lose

Sean Parker, a managing partner at Founders Fund and an early president of Facebook, argued that a new breed of “network” companies will overshadow tech giants like Google over the next decade.
At just 10 years of age, Google will decline in importance relative to companies that effectively harness the power of networks like Apple and Facebook, he said during a talk at the Web 2.0 Summit in San Francisco today.
What’s a “networked” company? It’s a business that produces value from the number of connections its facilitates, not the amount of data it can collect, he said. Strategies that fit into this category include creating social networks like LinkedIn, building marketplaces like eBay, gaming like Zynga and developing platforms like Apple.
Facebook, for example, becomes increasingly more valuable to all its users the more people it has, benefiting from network effects. Google, on the other hand, is engaged in “linear value creation” — it studies what people search for and fine-tunes its results in return. Parker said it does own a few networked services like AdSense, but that pales in comparison to what some of its competitors can build.
“I’m not trying to say that Google will have a reversal in fortunes,” he said. “But they will decline in relative importance.”
In a network model, he stressed a few key points — network effects can create winner-take-all scenarios. They also mean the best product doesn’t always win, he said pointing to Craigslist and eBay. Because of this, the dominant player in any networked space can become less vigilant.
“Having no competitors doesn’t generally breed a culture of excellence,” he said.
He also chronicled how Facebook rose to become the world’s dominant social networking company. First, there was Friendster, which wasn’t a “fad,” he said. It just had problems scaling its infrastructure.
Then came MySpace. By 2005, it had between 60 and 100 million users to Facebook’s 8 million. But they had “systematic product failure” and “technical limitations.”
Plus, Facebook had secured a “beachhead” among universities. They took a targeted approach — with Ivy League universities under their wing, soon they were able to capture other elite schools. Then they took a geographic strategy, where they would sign up a number of universities in close proximity to each other in key cities like Dallas and Houston. That established the groundwork for the social network to expand past its college roots. It’s engaging in the same tactics to take down social network StudiVZ in Germany.