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Open APIs and market dynamics defined

The concept of market dynamics comes from economics. In a flat world market dynamics takes place internationally. In a networked world market dynamics change at a blistering pace. These are knowns. What about unknows?

How do you stay in touch, stay ahead or catch up in your business? How do you then reposition and refresh your strategy for new challenges when the horizon changes unpredictably, and suddenly? Sunrise and sunset on the net don't arrive in neat 24 hour blocks.

The concept of market dynamics may be useful to you when you ponder those business strategy questions. To explore the concept this post uses a case study considering websites with competing social networking services. In the one corner in 2007 has emerged Facebook. In the other corners are the rest.

Facts

The factual base of the case study involves developments for Facebook and this week's announcement and partial launch of OpenSocial. Here is an overview of these developments.

  • Facebook status: In February 2004 Facebook was launched. In March 2007 it announced it would open its proprietary application programming interfaces (APIs) for developers to create applications which interact with Facebook features. Today Facebook claims 5,000+ independent applications, 100,000 developers and 50 million users. It made sense for it to announce in September a US$10 million “grant” fund supported by its primary venture capital backers, Accel Capital and The Founders Fund. Applicants were given the opportunity to pitch their application ideas to platform@facebook.com and seek a US$25,000 to US$250,000 “grant” in consideration for certain rights for Facebook.
  • Developer status: As a developer, Benjamin and his colleagues at Wiliam in Sydney, now have to consider how to respond to the opportunity that OpenSocial has created to reach into the growth of other social networking sites.
  • OpenSocial status: OpenSocial is prompted largely by the success enjoyed by Facebook (49 million active users as at October 2007 says Wikipedia) in opening its API to developers such as Christie. Facebook encouraged an army of such developers to write applications for the Facebook's APIs. OpenSocial is an open source project already subscribed to by numerous social networking and IT companies. The project plan is to agree on standards to allow third party software developers to write programs to the standards which will thus operate effectively on standards-compliant social networking websites. The standards will be for APIs. A wonderful list of Web 2.0 APIs is set out in ProgrammableWeb's Web 2.0 API List.

Definitions

The marketplace challenge of Facebook's growth, and now the response of the posse behind OpenSocial, provide an opportunity for a topical and short case study on the economic concept of market dynamics.  To enjoy this game you need to learn the rules, ie the definitions below. All the following economic terms and definitions are copied from Deardorff's Glossary of International Economics.

Market dynamics - The process by which market adjustment takes place.

Market adjustment - The process by which the economy moves to a new market equilibrium when conditions change.

Market equilibrium - Equality of quantity supplied and quantity demanded. See equilibrium.

Equilibrium - 1. A state of balance between offsetting forces for change, so that no change occurs. 2. In competitive markets, equality of quantity supplied and quantity demanded.

Competitive - Used alone, this usually means perfectly competitive. Contrasts with imperfectly competitive.

Analysis

Now apply the above terms and definitions to the facts of our case study:

  • [Illustrating Market Dynamics] Facebook in 2007 becomes the talk of the town, especially by changing its interface and making it easier for software developers to write applications for Facebook. In the market of social networking websites it was a master stroke. Thousands of developers took up the call to benefit from eating at Facebook's table. A feeding frenzy for eyeballs began.
  • [Illustrating Market adjustment] Google and others did not want to eat at the same table. They looked jealously as Facebook's feast grew bigger. Google conceived, implemented, and evangelised OpenSocial and formed a posse around it.
    • Google posse members share the belief that only the paranoid survive, for example, Orkut, LinkedIn, Slide, iLike, Hi5, Friendster, Plaxo, Oracle, Salesforce.com and Ning. The posse surfaced yesterday.
    • Absent from the posse are Facebook, Yahoo! and Bebo.
    • In the great public relations tradition of the IT sector, in some ways the announcement alone of OpenSocial may shrink Facebook's aura and maybe even its user growth curve.
  • [Illustrating Equilibrium] Some day, maybe, a state of equilibrium will be reached for developers writing for major social networking sites. If so, when? How? Which developers and sites will be victors and which will be vanquished?
  • [Illustrating Competitive] Facebook is currently very competitive for Google-owned Orkut and the rest of Google's posse.

UPDATE 2 November 2007: “MySpace, the world’s largest social network, and Google, Inc. (NASDAQ: GOOG) today announced that they are joining forces to launch OpenSocial - a set of common APIs for building social applications across the web." Source: Joint press release of Myspace and Google.


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