Hotelling-Facebook vs MySpace

8/6/2019 Hotelling-Facebook vs MySpace

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Executive summary

The topic of product differentiation has created controversial discussions on whether

organizations should minimize or maximize the differentiation with their competitors in order

to win the market. Originating from the Hotellings law about minimal product differentiation,

the paper presents the case of the two largest social networks: Facebook and MySpace in the

US. These two websites have minimized their differentiation by having similar features and

arrangement in their interfaces. However, differentiating at the same time by consistent

positioning strategy, original design style and powerful third-party application (i.e. Facebook

Connect), Facebook overtook the 1st

position in the USs social network ranking from Myspace

which dominated the market for a long time. The paper will start with the literature review and

dig into similarities and differences between Facebook and MySpace to have better

understanding on the Hotellings theory.


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BUSINESS AND ECONOMIC ANALYSIS INDIVIDUAL ASSIGNMENT

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Table of Contents

Executive summary ....................................................................................................................................... 0

I. Introduction ............................................................................................................................................... 2

II. Literature review ....................................................................................................................................... 3

III. Similarities and Hotellings theory ........................................................................................................... 4

IV. The fierce competition between Facebook and Myspace in the US ....................................................... 4

V. Differences and Facebooks differentiation strategy ............................................................................... 7

5.1 Positioning strategy ............................................................................................................................ 7

5.2 Members preferences........................................................................................................................ 7

5.3 Interface and design style .................................................................................................................. 8

5.4 Facebook Connect The feature for beating Myspace ...................................................................... 9

VI. Conclusion .............................................................................................................................................. 10

References .................................................................................................................................................. 11


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I. Introduction

Since the Internet was invented, it has changed totally peoples traditional ways in

sharing information around the world. However, in the first periods, people mainly used the

Internet for simple and separate activities like checking personal emails or browsing websites

for finding their needed information. Later, in the early years of this 21st

century, by realizing

the need of having communities where allow users to set up online profiles or personal

homepages, and develop an online social network (Ofcom 2008), the social networking has

been born. With this new innovation, there has been a boom of social network sites createdglobally. As these websites operate basing on similar mentioned concept of social networking,

finding the way to survive and develop in this fierce competition is not easy at all. In the US,

MySpace founded by several eUniverses employees in August 2003 dominated the market for

a long time. However, the situation has become more difficult for MySpace when its biggest

competitor, Facebook, appeared in February 2004 by Mark Zuckerberg, a Harvard psychology

student. In the beginning, Facebook was the college-only social network with the limited access

(FDCW 2009). In 2006, Facebook was opened free registration for everyone all over the world.The traffic in this site has not stopped increasing and Facebook overtook MySpaces position to

become the worlds biggest social network since April 2008. Also, recently, Facebook beat

MySpace to become the leader in social networking in the US where has been dominated by

MySpace for a long period.

In brief, despite having significant similarities between these two social networks, each

one tries to differentiate its product in order to win the market. Looking at what Facebook and

Myspace have done, this links to the Hotellings law about minimal product differentiation in

the social networking domain to maximize their profits. However, Facebook has won the

market by maximizing its differentiation at the same time. The paper will use the key theory

Hotellings law to examine and deepen the understanding about the case of these two giant


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social networks in the US. Starting by reviewing the literature, the paper then purposely tends

to answer the two following questions:

1. What are the similarities of these two social networks and how they represent theexample of Hotellings theory?

2. What are the differences in their products and different approaches to positioning ineach website? How has Facebook differentiated to win against MySpace?

II.Literature review

Hotelling uses the example of two ice-scream vendors who selling from the two extreme

locations of a beach to illustrate the theory about minimizing product differentiation. The result

of the observation points out that the best way to maximize the market share is to locate in the

middle of diverse consumer preferences (Carlton and Perloff, 2000). Similarly, according to

Downen (2005), competitors tend to make their products similar, but not identical, in an effort

to maximize their market share. In the case of the two social networks Facebook and

MySpace, the following parts of the paper will look at how these websites minimize their

product differentiation and how the winner could maximize the market share by maximize its

differentiation at the same time.


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III.Similarities and Hotellings theory

With the speedy development of social networking and its fierce competition,

whenever a new attracting feature is release by a site, it will be rapidly imitated by others to

purposely reduce distances with their competitors and attract more Internet users. In the case

of Facebook and MySpace, the theory of Hotelling about minimal product differentiation is

obviously shown. Both these online social networks minimally differentiate their sites by having

similar features such as, blogs, chat, status, music, videos, pictures and third-party applications

for probably create a familiar environment and quicker adaptation for new members after

registering their free membership. These two websites not only attempt to have similar

applications but also to have similar looks in the interface. Similar to Facebook, MySpace

arrange the profile box on the left corner and the informing bar containing notifications, instant

messages and recommended features at the bottom. This similar arrangement will help new

users quickly adapt to a new social networks system.

IV.The fierce competition between Facebook and Myspace in the USWhen MySpace is established in 2003, this social network was not only the leader in the

US but also around the world at that time. However, MySpace faced the severe competition

from the second largest online society in the US since 2007. Facebook has become the worlds

biggest social network in April 2008 and dominates the social networking domain in most

countries except USA, Germany, Japan, etc.


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In 2008, Facebooks visitors did not stop rising while those for MySpace seemed to

maintain stable. Despite being the global leader, Facebook was still catching up MySpace in the

USs market.

Source: comScore 2009, cited in Tech Crunch 2009


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The strong increase of Facebooks unique visitors in the end of 2008 menaced

MySpaces dominant position. From May 2008 to May 2009, the unique visitors coming to

Facebook doubled from 35.59 million to 70.27 million while those of MySpace slightlydecreased by 5% from 73.69 million to 70.25 million (comScore 2009, cited in Inside Facebook

2009).

Source: Hitwise 2009, cited in Read Write Web 2009

Finally, in May 2009, Facebook overtook MySpace to become the leader in the social

networking in the US. What Facebook has done proved that organizations not only need to

have similar product attributes (i.e. Hotellings law) compared to their competitors but also

know how to differentiate their products at the same time to win the market. The following

part will dig into differences between Facebook and MySpace to understand which elements

lead to Facebooks victory in the US.


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V. Differences and Facebooks differentiation strategy

5.1 Positioning strategy

Although both Facebook and MySpace are the most popular social networks in the

world, their positioning strategy is quite different. Facebook positions itself as a communication

tool which helps people to connect and share with others in their lives. Comparing to

MySpaces slogan, it just wants to be a place for friends. Rather than supporting

communication and networking like Facebook, MySpace wants to position itself in users mind

as a new hangout site a kind of virtual alternative to the mall beloved by teenagers

(Guardian 2009).

5.2 Members preferences

Having different positioning strategy has led to the difference in members interests

when coming to these two social networks. While Facebooks users like online activities

concerning education, science and economy, MySpaces members enjoy playing card games,

pet/animals and puzzles (Netpop 2008, cited in Very Official Blog 2008).

Source: Netpop 2008, cited in Very Official Blog 2008


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5.3 Interface and design style

Although both social networks use their two main colors: white and blue in design, the

way people interact with their interfaces is significantly different. While MySpace tends to let

members customize their sites with colors or background images, Facebook focuses on the high

flexibility with simple and professional design. This could be explained by their mentioned

positioning strategies and education level of members.

Source: Netpop 2008, cited in Very Official Blog 2008

As Facebook is initially used by students in universities like Harvard or Yale in the first

period, it then positioned as a communication tool which helps students or professionals to

connect and share information with their friends or partners. The simplicity and flexibility in the

Facebooks design style is substantially different with those of MySpace. With the focus on

providing an entertaining environment, MySpace welcomes more high school students and

teenagers. Therefore, it let members freely personalize their pages.


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5.4 Facebook Connect The feature for beating Myspace

Figure Facebook Connect

People have not stopping asking how Facebook could win against MySpace and the

answer is probably about the Facebook connect. From getting users information:

Identity: name, photos, events, and more. Social Graph: friends and connections. Stream: activity, distribution, and integration points within Facebook, like stream stories

and publishers.

(Facebook 2009)

Facebook uses the keywords from the above categories to connect users which have

relevant information to the filtered words. Moreover, by expanding the connection to others

devices like mobile phone, Facebook is really an entire eco-system rather than a website like

MySpace (Facebook 2009).


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VI.Conclusion

In conclusion, the case of Facebook and MySpace follows the Hotellings law about

minimal product differentiation. Both websites share the similar features in order to easily

welcome new users and help them adapt quickly with the familiar arrangement in their

interfaces. However, the core differences in their positioning strategies led to different points in

their design style and creating features. With the focus on creating an entertaining

environment, MySpace seems to lose their attention on helping people to connect each other

and share information effectively like Facebook has done. Therefore, by the differentiated

feature called Facebook Connect, this worlds largest social network has won the US market by

its core purpose, being a communication tool to connect people and help them to share with

others in their lives. The case closed with the lesson about Facebooks smart strategy in

minimizing and maximizing its product differentiation at the same time to win the giant

competitor, MySpace.


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References

Carlton, DW & Perloff, JM 2000, Modern Industrial Organization, 3

rd

ed., Massachusetts:Addison-Wesley.

Downen, T.D. 2005, A Multi-Attribute Value Assessment Method for the Early ProductDevelopment Phase, Massachusetts Institute of Technology.

Facebook 2009, Build and grow with Facebook Connect, Facebook, viewed 15 September 2009,< http://developers.facebook.com/connect.php>.

FDWCW 2009, Facebook vs MySpace, Faculty of Arts and Social Studies, viewed 18 September2009, .

Guardian 2009, How Facebook beats MySpace, Guardian, viewed 15 September 2009, .

Inside Facebook 2009, comScore: Facebook Passed MySpace in the US for the First Time inMay, Inside Facebook, viewed 15 September 2009, .

Nielsen 2009, SocialFaces and Networked Places: A Nielsen Report on Social Networkings NewGlobal Footprint, Nielsen, viewed 18 September 2009.

Ofcom 2009, Social Networking: A quantitative and qualitative research report into attitudes,behaviours and use, Office of Communication, viewed 18 September 2009.

Perloff, JM, 2007, Microeconomics, 4th Ed., Addison Wesley, Boston. Read Write Web 2009, How Facebook Beat MySpace: From College Dorm to Platform, Read

Write Web, viewed 16 September 2009, .


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Tech Crunch 2009, Social Networking: Will Facebook Overtake MySpace In The U.S. In 2009?,Tech Crunch, viewed 16 September 2009, < http://www.techcrunch.com/2009/01/13/social-

networking-will-facebook-overtake-myspace-in-the-us-in-2009/>.

Very Official Blog 2008, The social network challenge: MySpace or Facebook: How well do youknow your audience?, Very Official Blog, viewed 17 September 2009,

.

Hotelling-Facebook vs MySpace

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