This blog article is written by one of investors of Zynga - the developer of games for social networks. The author observes that the web is all about building networks on top of networks. The internet is the base global connection network with over billion people, and we have been building on top of it. The creation of social networks on the internet like Facebook or MySpace have been a big deal, since these networks “have rich social graph databases that know who we care about most” and allow developers to build applications that can tap into the network’s social graph. Because these app networks were built on top of social graphs, these networks are able to leverage the social graph to provide social network utility to app developers. The author calls this a second order network effect, since building networks on top of social networks produces even more utility to app developers.

Here is an explanation based on the example of Zynga. Zynga makes social games. Recently, it launched its own game network via Zynga API. It’s important to note that majority of all clicks are sent to third party apps that have joined the network. However, having more successful apps in the network means more clicks for everyone. That’s the second order network effect in action. So if you have a social game that you have built, then getting clicks is a big part of success, particularly early on in the life of a game. Joining a game network like Zynga a free way to get clicks. Getting noticed on a network like facebook, where there are over 17,000 apps is hard, so if you are a game developer you should join a game network.

As we learned in class, the probability that another user will join a given network is strongly correlated to the number of prior users of the network. This is the network effect [positive externality of joining a network]. So if you are picking a game network to join, go to the one that has the most game players in it. You’ll get the most clicks that way. [This is also an example of an information cascade, which is completely rational, given such network effect]. By interconnecting many of the Facebook game apps, Zynga and other open app networks are creating a channel for everyone to participate in, so that companies do not have to compete to own and control separate networks. Like the Facebook or MySpace, all networks have more value with more nodes.

Snapshot of the Zynga application on Facebook

http://avc.blogs.com/a_vc/2008/03/the-second-orde.html