In this, the third in a series of articles on what businesses can learn from Facebook, I consider the impact of the network effect. The first article, a new information sharing model, considered how the principles of Facebook information sharing can be applied to business and the second turned attention on collecting and analysing data.

When you sign up for Facebook today, the site already has dozens, maybe hundreds of friendship recommendations waiting for you. All you need to do is hit ‘accept.’ As odd, perhaps even a little creepy as that may feel, it is testament to the vibrancy of that community. It’s proof that the famous network effect has reached critical mass. It’s easy to forget though that it hasn’t always been that way.

Just a few short years ago, Facebook and MySpace were roughly at par. The infrastructure behind each was essentially the same. Cloud-based, profile pages, status updates, news feeds, apps. Then Facebook gained critical mass, reached a tipping point and the rest is history. MySpace was crushed and eventually sold off for less than a tenth of the $580 million that News Corp had paid to acquire it just a few years earlier. The site recently re-launched as a small niche player – a mere shadow of its former self. It’s the community that made the difference here.

People want their social networks to be peer-approved. They don’t just want some of their friends to be part of a community. They want all of them connected to it. Who wants to be the only guest at a cocktail party?

The Network Effect

The same applies to cloud-based business-to-business (B2B) networks for global trade and supply chain management. It is not only about the infrastructure used to connect or the software that manages those connections. It’s about the community.

In fact, if your cloud supply chain platform was a cocktail party, the world’s biggest logistics providers, the leading ocean carriers, major trade banks and many of your suppliers should already be sipping on their cocktails by the time you get there. You don’t want them calling in, having to ask for directions. This is the network effect, when users of a technology benefit from the fact that everybody else uses it.

In my line of business I get asked all the time: “Which industry leaders are embracing your platform? How many industry verticals are represented? Are companies starting to build business models around the platform?” The reason people ask these questions is they are looking for vibrancy. They want to know if significant industry stakeholders, like logistics service providers, have already made their bets and are standardising on the platform, maybe even white-labelling it for their own customers.

All these are telltale signs that a community has reached a tipping point and may be in the process of becoming the Facebook of supply chain and global trade. And clearly, decision makers who ask these types of questions have already embraced the concept and now want to maximise their chances of betting on a Facebook over a MySpace.

Just to be clear, there have been attempts over the years to build closed trading communities around hubs. The automotive industry, for example, would try to build a hub to get manufacturers and suppliers connected. Pharma would do the same in that vertical… This approach hasn’t lead to the type of breakthrough that companies had hoped for.

Why? For one, even if you feel like it’s ok just to network inside your industry silo, in order to truly get all the players that matter to your extended value chain onto the same page, you need to connect to partners outside of your vertical. You need logistics providers to be connected, you need ocean, air and truck. And not just one, but ideally all of them so you can pick and choose according to your criteria, rather than going with the one that just happens to be on the platform.

In many ways, we are several years ahead with our embrace of social networking in our private lives. But the business world is catching up quickly. These are exciting times as the same reasons that caused Facebook to win big over MySpace are starting to become visible in the area of cloud-based B2B networks as well.