Google+ was launched sometime in 2011. It got rave reviews and many technology enthusiasts claimed that it was much better than Facebook and advised users to switch. More than two years later Facebook continues to be the leader and Google+ is at best an also ran.
The moral of the story is that a better product doesn’t always win in the market place. And there are various reasons for the same. In case of Google Plus versus Facebook it was a clear case of the network effect.
As Niraj Dawar writes in Tilt – Shifting Your Strategy from Products to Customers “For those who want to be a part of a social network, it makes sense to congregate where everybody else is hanging out. There is only one village square on the Internet, and it is run by Facebook. Being on a different square from everyone else doesn’t get you anywhere—you just miss the party.”
This was the main reason why people did not move from Facebook to Google+, even though it may have been the better product. “Google + may offer features such as greater privacy or group video chat,” writes Dawar, but it fails to “create the positive feedback loop, because it makes sense for everybody to be where everybody else already is.”
Hence, people stayed on Facebook because everyone else was on it as well. So, even though most people may have the mandatory Google+ account, but ask them where they spend a good amount of their social networking time, and the answer you will get is Facebook.
An excellent example of the network effect being the main reason for the success of a product is the WhatsApp messenger. Despite the fact that there are other players in the market which are advertising very heavily, WhatsApp continues to hold its ground.
Another area where the network effect plays out these days are the movies. “With social networks’ rapid dissemination of information, these types of brand network effects have been turbocharged—they occur more rapidly and forcefully than ever before. A movie now flops or hits as a result of the first forty-eight hours of tweeting and box office sales,” writes Dawar. The holiday season and long weekends are littered with examples of several bad movies, which people watched because everyone else had.
At times what also happens is that the criteria for success that the company had backed on, turns out to be different from what consumers think it should be. Take the case of the VHS versus Betamax battle for the video standard, between Sony and Matsushita, both Japanese companies. Sony decided to concentrate on video quality whereas Matsushita decided to concentrate on longer recording time, which ultimately became the key differentiator between the two standards.
By concentrating on the quality of the video Sony was just doing what it had done in the past. But consumers, it turned out, were looking for a longer recording time and were willing to compromise on the quality of the video.
At times, the consumers don’t have a role to play and have to go with what is offered. Take the case of the battle between Blu-ray and HD-DVD, two competing DVD formats. As Karl Stark and Bill Stewart write in an article titled Why Better Products Don’t Always Winon Inc.com “Unfortunately differentiating factors aren’t always clear, and consumers don’t always get the right to choose. Consider the battle between Blu-ray and HD-DVD; while consumers could buy either product, ultimately the war was fought over which content providers would exclusively back each format. Since more content was available on Blu-ray, it ended up creating more customer value, despite the possibility that HD-DVD was a technically superior product.”
Once the consumer is on the Blu-ray format, there is a huge cost of switching to HD-DVD, even though HD-DVD may catch up in terms of content that is available on it to be viewed.
On occasions what also happens is that the brand association of a particular product being the best product in that category is very strong and competitors can’t break it. Take the case of Gillette. As Dawar writes “After more than a century of blade technology, Gillette still controls when the market moves onto the next generation of razor and blade. And even though for the past three decades, competitors have known that the next-generation blade from Gillette will carry one additional cutting edge and some added swivel or vibration, they’ve never pre-empted the third, fourth, or fifth blade.”
Why is that the case? “Because there is little to gain from preemption. Gillette owns the customers’ criterion, and the additional blade becomes credible and viable only when Gillette decides to introduce it, backed by a billion-dollar launch campaigns.”
The chip maker Intel is in a similar sort of situation. Consumers believe that the chip is the fastest chip in the market, only if it comes from Intel. “Both AMD’s K-6 chip and the PowerPC chip were faster than the fastest Intel chip on the market at the time of their launch. But the two challengers were unable to move the market,” writes Dawar.
To conclude, let me quote Stark and Stewart: “Better products win when the total value – that is, the benefits minus the cost – is clear and measurable to the customer and creates more value than comparable offerings.” The trouble is it is difficult to figure out in advance what creates more value for the customer. Even the customer may not know the answer to that question.
The article originally appeared on www.FirstBiz.com on February 25, 2014
(Vivek Kaul is a writer. He tweets @kaul_vivek)