An Analysis of Network Competition with Changes of Network Topology through “Open API”

Social network services (SNS) are the most prospering business in Web 2.0 regime. In May 2007, Facebook introduced an “Open API” policy; it allowed third-parties to create SNS applications by themselves. Through this innovation Facebook rapidly grew, and it surpassed the then leading SNS - Myspace. Based on the laws of the network value, we hypothesize that “Open API” revolutionized Facebook’s topology with two topologies that are accordingly defined by Metcalfe’s law and 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 that the marginal growth under Reed’s law is greater than that under Metcalfe’s law. We also empirically test the effect of “Open API” on user growth by using panel analysis on traffic data of five SNSs. The result implies that “Open API” changes a SNS into a group forming network