by C.G. Lynch

Microsoft and Facebook Show the Power of Lock-In

May 14, 20093 mins
Enterprise Applications

Facebook is still poised to win the social networking wars. Not Twitter. Not FriendFeed. And rest assured that  Facebook won’t become another AOL. Nor will it become another Friendster.

The reason is simple: Facebook has more than 200 million users (and growing), and the switching cost for a good portion of those people to leave is already high.

Historically, Microsoft serves as our guide for the lock-in strategy. Years from now, we will say that Facebook and Microsoft shared one very important attribute: To maintain long-term dominance in their respective industries, they didn’t need to sustain the high level of innovation that got them there.

Instead, they merely had to create enough of a critical mass — who got locked into their technology — and do everything in their power to make it hard on them to leave.

In Microsoft, we see this everyday, especially when it comes to selling its business software. Long-term enterprise agreements for SharePoint, Exchange and Office have made businesses beholden to the vendor for years at a time. Even when a contract expires and the customer has the temerity to shop around, Microsoft lowers the price so substantially to renew that they make the customer look foolish to jump ship for other software — nevermind if it’s more cutting edge, flexible and user-friendly.

Facebook has lock-in with social networks. A whole generation has uploaded (now years) of pictures, videos and messages. The notion of porting this data to another social network is exhausting. Yes, Facebook likes to make sweeping statements that “you own your data,” but that doesn’t mean Facebook will do anything to make it easy to move to some other site.  

Lock-in is different than a monopoly (though they’re often confused). With lock-in, users and buyers stay by their own volition. Alternative and perhaps better services might exist, but most users are loathe to try them. With a monopoly, of course, you don’t have a choice who to buy from.

Each day, Facebook increases its chances of success with every album that’s uploaded and every party invitation created. Facebook executives may not have found a way to build a sustainable business model just yet, but if they can retain nearly all those people, it’s hard to imagine them not finding a way to remain on top of the social networking universe.  

This is an issue I will be exploring with greater depth during the coming months. If you have thoughts, send me a note or follow me on Twitter.