Apple effort to build network effects around its products

The other day I was musing about how Apple's recently released FaceTime software will do to Apple's impressive product line. The potential is huge. 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. Apple is encouraging both parties to get iPhone 4s, iPad, iTouch and now Macs that 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 Apple products, 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, Apple will easily gains more market share by selling more hardware.

FaceTime not only adds to the many features that makes Apple's current product offering the strongest in its history. But it also has the potential to increase the stickiness of the platform exponentially. 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 use. Only time will tell.