As learned in class, an information cascade occurs when an individual is able to observe the decisions of others before they act, and it may be rational for them to choose to follow the others even if their own information tells them something else.

 We may not think about it that often, but many who use online networking services to keep in touch with friends, and to make friends with others around with world using the same service can create a multimillion dollar corporation. At the same time, the same people making this possible can also put an end to the success very quickly. As stated in the link provided, News Corp. bought the popular online community MySpace for $580 million in 2005. Soon thereafter, Google spent $900 million for an advertisement deal.

One of the ways to measure a website’s popularity (one important way to analyze) is the average time a user stays on the site according to Nielson-NetRatings. The figures show that users of Facebook has a higher rate of growth per day than that of MySpace. Given this fact, even though there are currently more users of MySpace than Facebook, this will soon be the opposite. Facebook has quickly gone up the ranks as one of the most popular online networking site around, surpassing sites like MySpace because of many different reasons, including the information cascade. There were many interviews with teenage students stating that after months of using MySpace for up to several hours a day, they soon phased it out completely due to the limited use of their peers. This illustrates that in these instances, even though the user originally had been using MySpace for an extended period of time and all of a sudden stopped, they had to have been influenced by the pack of friends who were switching over to a different site. It would seem like they liked what they were using, but due to the choices of their friends and peers, they decided to follow them even though they had fun with the previous one.

This also has a huge impact on corporate America, and how investments in the online communities can be a risky proposition, especially after reviewing the track record of previous attempts. To add to the trend, Google purchased YouTube for $1.65 billion, in hopes of a continued and increased viewing audience. There have been several major aquisicitons that were attractive at the time, but the users of the then popular internet sites all of a sudden dropped significantly in usage. In the past, Xanga decreased in average time per day by a factor of 8.   

http://www.web-strategist.com/blog/2008/01/09/social-network-stats-facebook-myspace-reunion-jan-2008/

 http://www.washingtonpost.com/wp-dyn/content/article/2006/10/28/AR2006102800803_pf.html