So who has the upper hand in the tussle between MySpace and Photobucket? Mike Arrington argues that Photobucket has the stronger lock-in: “many MySpace/Photobucket users will simply leave MySpace and go to one of its many competitors rather than lose the ability to embed their Photobucket media. Re-creating a profile at another social network takes a lot less time than re-uploading hours of video. In the end, Photobucket could prove to be stickier than MySpace.”
I don’t buy that. While it’s true that for some (small but perhaps important) minority of MySpace customers, the time-related switching cost of leaving Photobucket would be higher than the time-related switching cost of leaving MySpace, time is not the only factor. There’s also the network effect: How much of the value of the site comes from the other people using it? The network effect would seem to be much higher for MySpace – it’s all about the friends, right? – than for Photobucket. MySpace gives you an address; Photobucket gives you a tool. Unless there’s a mass exodus from MySpace, which is highly unlikely at this point (yes, that contradicts something I wrote a year ago), the total switching cost for leaving a popular social network like MySpace will be much higher than for leaving a tool-maker like Photobucket.
A lot of people will buy a new phone even if it means reprogramming all their automatic-dial numbers. Switching phone numbers is a much bigger deal, even if it’s “easier.”
I think Dare Obasanjo gets it right:
The key question is whether the lock-in from a social network site like MySpace (where all your friends are) is more significant than the lock-in from having my media stored in a particular photo hosting or video hosting site. If MySpace has only blocked new embeds from PhotoBucket then I’m willing to bet that it is more likely that users will simply pick a new media hosting provider (e.g. YouTube for videos, Flickr for photos) than that they’ll switch to Facebook or Windows Live Spaces because they are too tied to PhotoBucket. If I were PhotoBucket, I’d work with MySpace and either (i) agree on how MySpace gets a revshare of PhotoBucket ads shown on their site or (ii) make it easy for MySpace to filter out the embeds with ads (which are a minority) and allow other embedded media from PhotoBucket pass through.
What this affair reveals is that even in the supposedly open world of Web 2.0, competitive advantage still seems to be measured by the strength of a site’s or a service’s lock-in and the size of the switching costs it imposes on its “members.” It’s still as much, or more, about erecting barriers as it is about knocking them down.