Check Out Those FaceTime Ads: Think Apple Understands The Network Effect?

Everyone is going nuts about the latest Apple iPhone ads, which feature normal people using FaceTime video chat to laugh and cry together.

As far as we're concerned, the jury is still out on whether Apple's new FaceTime iPhone video chat will be the next big thing or just another cool feature that no one uses (please weigh in with your thoughts here).

But there's no mystery as to what Apple is up to strategically.

Right now, FaceTime is a closed system: Both parties need an iPhone 4 and WiFi to use it (that's a seriously limited pool). By hyping FaceTime in its ads, Apple is encouraging both parties to get iPhone 4s, so they can use it. If the pitch works and people like the service, FaceTime will be yet another major asset in Apple's desire to build a closed system that benefits from strong network effects and a huge barrier to entry.

Closed systems with network effects are hard to build because consumers and competitors prefer the convenience of open platforms. When you can successfully build closed systems, however, they make awesome businesses. The more people who use the product, the more valuable the product gets, and the harder it is for competitors to break in and offer another viable choice. Thus, as the network effects really kick in, the leader easily gains more and more market share.

The network effect is the magic that grew AOL into a juggernaut (AIM), gave eBay an early monopoly on auctions, and has powered Facebook and Twitter to global dominance in recent years. It is also the effect that is crowning Foursquare king of the "check-in" world and turning early competitor Gowalla into roadkill.

Apple is already benefiting from network effects with the iPhone thanks to the success of apps and the App Store, which offer a platform for third parties to build on. But the wholesale success of FaceTime would take this to a whole different level.

Thus far, Apple's network effect has made the iPhone more valuable to developers and users by virtue of there being more users, more developers, and more apps on the iPhone than on any other platform. These are powerful but indirect benefits. Widespread use of FaceTime, meanwhile, would instantly make the iPhone vastly more valuable to an iPhone owner, because it would allow you to simply and easily do video chat with your friends. This would encourage whole families and workplaces to adopt iPhones and only iPhones.

Obviously, Android will soon roll out a competitive solution that is available on multiple phones. And obviously there will quickly be apps that make this possible across multiple phones. But based on history thus far, Apple's FaceTime will be far simply, easier, and more convenient that competing solutions for a long while--certainly for plenty of time to build up a powerful network effect.

So that's why Apple's hyping the heck out of FaceTime (that and the fact that, for now, it's a unique feature available only on the iPhone).

Now the question is whether anyone actually wants to use FaceTime. (Again, you can weigh in here).

Don't miss: Apple's New Shanghai Store Looks Amazing

 

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Comments

[MrVee]

01:08 PM on 07/14/2010

Picture in Picture isn't some new innovation. It's an idea television has had and used for years. Web cams has been doing this for years and many Windows based laptops come with web cams built in. As the size of electronics shrink this idea has made it to the cell phone.

I don't yet know if Apple didn't spend an inordinate amount of time "reminding" us that video chat exists on iphone4 that anyone will really care that much about it as time passes. But it is a feature they want to push for now, at least to the degree to keep the antenna issue from taking too much airtime.

[nanderson65]

05:39 PM on 07/13/2010

wow! You mean you have to buy their stuff to get to use their stuff?
Amazing... what gall?

[Joshdog]

03:14 PM on 07/13/2010

I don't see FaceTime taking off with the iPhone 4 for the simple reason that video chat over 3G networks is a very poor experience (which is likely why FaceTime has been set to only work with WiFi and Skype has not yet brought out an offering). Until Apple comes out with a 4G phone, and 4G networks are more widely available, this game is still wide open.

And, the single biggest usability feature in a mobile video chat app (more so than whatever slickness Apple builds into FaceTime) will be the capability to work across platforms. If Apple chooses to keep the network limited to iPhone users, another competitor - Skype or Fring or Qik - will offer a cross-device product. It seems hard to imagine a way for Apple to keep these products off the App store without incurring user wrath and DOJ scrutiny.

That said, if FaceTime helps drive the competitive pressures in the mobile video chat arena, that's definitely a good thing.

[Angelus2007]

02:27 PM on 07/13/2010

One thing I sort of disagree with, consumers don't necessarily prefer an open network, they just want t a system easy to use, that does what they want. For example, video games are closed systems and networks and sell great. I can have Madden for 360 and somone could have it for PS3 and we cannot communicate, or play unless we are on the same platform. The games are easy to play (the game itself may be hard) you put the game in the tray, turn it on you are set.

PC has had open network for voice chat, and it is a pain. My wife and I were given a webcam so she can talk with her parents via video. It took 2 hours of configuring and setting up to get it not to work. We had no problems on our end, her parents kept running into issues. There was no easy simple way to get it working. Many people reading this will say it is easy, but not everyone had that knowledge and understanding of how it works. Apple makes this easy for children and adults, regardless of tech knowledge. Setting up webcams, and installing programs is daunting for many people. Turning on a phone, and hitting face time is easy. Apple does a great job at making things easy. Tech savvy people may prefer driod and its open source, but most consumers don't fit into that category, and want somethine easy, even if it is limited.