Techcrunch has this really wonderful post explaining the success of digg. Basically it says that digg succeeded because it was a small company taking on established media, trusted by a good number of followers and satisfied an inherent need of the users to get unfiltered information. All of these points are true. However that is true for all the digg clones as well. Then what explains the fact that none of the digg clones have become a success.

The most important reasons are the network effect and first mover advantage. First mover advantage may not count for a lot on its own. But couple it with network effect and you have a really lethal combination.

Simply put the network effect means any system whose value for a new user goes up as the number of users on the system increases. The text book example of network effect is a telephone network. If you are the only 1 with a telephone then the value of the system for you is zero. However the value for the second user is higher than zero, as he can now talk to you. The value for the third user is still higher as he can talk to 3 people. Basically the value of telephone network goes up as more and more people use it.

Network effect is very important on a site like digg. More number of users means more stories being submitted. As more people start voting, it becomes more difficult to game the system. Also since now digg is able to send more traffic, websites start putting up digg buttons on their site. This creates a virtuous cycle, that keeps making digg even more useful.

For a new entrant, the only way to break this virtuous cycle is to come up with a differentiated offering that will be attractive enough for the users to try it out. We have seen facebook doing so successfully by creating a social network for college students alone. However social news by itself is a very simple product. Hence the ability of competition to come up with a differentiated product is very less.

A new entrant ximmy is trying to do so by paying the users to submit links and commenting upon them. We need to see if the apyment will be incentive enough for the users to abandon digg and come to ximmy. You can read our earlier post about ximmy here.

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