Home Feedburner’s Network Effects

Feedburner’s Network Effects

released more stats
to celebrate reaching 100,000 managed feeds. They highlight some
impressive growth in the number of subscribers to Feedburner feeds – over 4.2 million
subscribers per day by end of August. Paul Kedrosky noted that the
number of subscribers has doubled every 2 months during 2005. Dick Costolo also pointed
out the global nature of this growth, saying that they “now count almost 2000 different
aggregators and bots polling feeds on behalf of subscribers and other feed services
coming from over 190 different country level domains.” 

Like Dick, I think these stats tell “the story of a changing media landscape in which
more subscribers are consuming more content wherever and whenever they please.” It also
tells the story of a publishing company, Feedburner, that is rapidly becoming a ‘big
publisher’. Maybe they are already. And not just in terms of the number of feeds they
manage – 100,000 – but also in the number of subscribers to those feeds (users in
traditional Web parlance).

This is what’s known as network
at work. When a product or service has a network effect, it becomes more valuable or useful as it gains more users. It was a common strategy in the dot com days – to gain as many users
and as much market share as possible and then eventually profit or be bought. Well, it
only worked for a small percentage of dot com companies.

Amazon went for years without
making a profit, but its long-term strategy of gaining as many users as possible
eventually paid off when the e-commerce market matured. In Amazon’s case, network effects were gained mostly from its customer reviews and user metadata – the more people that contributed data, the more useful and valuable Amazon.com became. But many other dot com companies
crashed and burned without ever getting to profitability.

A recent Web 2.0 company demonstrated that network effects can pay off big time,
despite (or because of) the risks. Bloglines you
will remember was the first to
with a decent web-based Aggregator. While the bigco’s twiddled their thumbs
and other potential competitors watched from the sidelines, Bloglines proceeded to build
up a large user base and came to dominatethe RSS Aggregator market.
They were almost certainly nowhere near profitablity, but that didn’t matter. Eventually
Mark Fletcher sold Bloglines to
Ask Jeeves
, just before The Big 3 swooped in and commoditized RSS Aggregators
(well actually the commodization isn’t yet complete – but the writing is on the wall).
Fletcher’s strategy was to build up the Bloglines user base – and by extension the amount of data Bloglines had about users and their subscription patterns – and then get acquired. He’s
done that twice now (first
with ONElist sold to Yahoo!) and he’s a millionaire many times over because of it.

I’m not suggesting Feedburner’s strategy is to get acquired. It’s one possibility, but
equally they could go the Amazon track and wait until the RSS Publishing industry matures
and revenues roll in (like the e-commerce industry did for Amazon).

Either way, network effects are certainly happening for Feedburner. The more feeds they manage, the better quality statistics they can produce and the more users and subscribers they can attract. The stats they
released today indicate they’re well on their way to a huge user base, although it’s fair
to say they’re probably not very profitable at this point. TechCrunch
that only about 5% of Feedburner managed feeds are the Pro version. Peter Cooper in the comments reckons it’s even
lower than that – 2.5% is his guess.

But really Feedburner won’t be the least concerned by that. They’ve got tons of users
and they’re growing at a very fast rate. They’re already the dominant RSS Publishing
company in their market (there are other niches though). For an Internet company, that’s
all good news. So long as there’s $$$ light at the end of the tunnel. That’s the risk, of
course. But if it pays off, it will pay well.

Update: added more detail to explain Network Effects better.

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