Why do people use Facebook? Because all of their friends are using Facebook (except for those of you not on Facebook, of course). Same for Twitter. Once upon a time, that was true of MySpace.
In the physical world, the Telephone was a great example of network effects. More the number of people with Alexander Graham Bell’s invention, the more people (that didn’t have them) wanted them because now the device was more valuable to them.
This is the phenomenon of Network Effects. A wonkish side-bar from Wikipedia sheds more light on the benefits of network effects, before we get back to Netflix:
Network effects become significant after a certain subscription percentage has been achieved, called critical mass. At the critical mass point, the value obtained from the good or service is greater than or equal to the price paid for the good or service. As the value of the good is determined by the user base, this implies that after a certain number of people have subscribed to the service or purchased the good, additional people will subscribe to the service or purchase the good due to the value exceeding the price.
Groupon, in some sense, leverages the network effect (or used to…haven’t used it in a while). A deal is activated only after a certain number of people sign up for it, so those that buy the deal early on have a vested interest in making sure their friends know about the deal via email, Facebook, Twitter, etc.
Which brings us to the enormous amplifying potential of social media – as a means to spread the word, build a company’s brand, build your brand (as a consumer of the finer things in life, for example – or the baser things, as the case may be), when you buy a book, watch a video on Netflix or listen to a song on Spotify.
Actually, until today, you couldn’t do that with a Netflix video – because someone in the distant past leaked the list of videos that a Supreme Court justice checked out of a video store. Nothing salacious about those videos, just the fact that someone did that was enough to pass a law forbidding the sharing of one’s video consumption with the wider world:
During debate over his nomination, Bork’s video rental history was leaked to the press. His video rental history was unremarkable, and included such harmless titles as A Day at the Races, Ruthless People, and The Man Who Knew Too Much. Writer Michael Dolan, who obtained a copy of the hand-written list of rentals, wrote about it for the Washington City Paper. Dolan justified accessing the list on the ground that Bork himself had stated that Americans only had such privacy rights as afforded them by direct legislation. The incident led to the enactment of the 1988 Video Privacy Protection Act.
Netflix was understandably unhappy about this and wanted to make sure its viewers were able to tell all their friends that they just watched Dora: The Big Red Truck for the 34th time. It finally got its wish today. A bill expressly allowing this was just passed and will head to President Obama’s desk soon to be signed into law.
Interestingly, via AllThingsD,
Outside of the U.S., the service has already integrated directly with Facebook; Netflix CEO Reed Hastings is a Facebook board member.
So starting in 2013, you can broadcast to the world the great, not so great and the downright terrible taste you have in movies and TV shows.