AN ANALYSIS OF NETWORK COMPETITION WITH CHANGES OF NETWORK TOPOLOGY THROUGH “OPEN API”

A social network service (SNS) is the most prospering business in Web 2.0 regime. In May 2007, Facebook implemented “Open API ” which allows third-parties to create applications in SNSs. This innovation led to a rapid growth of Facebook and made surpass Myspace, the leading SNS at that time. Based on the laws of the network value, we hypothesize “Open API ” policy revolutionized Facebook’s topology from one defined by Metcalfe’s law to that by Reed’s law. We model the duopoly competition of SNSs and show that the growth of SNS adoption is a polynomial function of time under both laws, but the marginal growth under Reed’s law is greater than that under Metcalfe’s law. We also empirically test the effect of “Open API ” to user growth by using panel analysis on the traffic data of five SNSs. The result implies “Open API ” makes a SNS turn into a group forming network