Editor’s note: Verisign and the network effect

I used to be a big proponent of a concept known as the network effect, the idea that things become more valuable as more people use them. Facebook, for instance, has limited value to me if I am the only one using it. But get all my friends and business acquaintances to join, and something magical happens. Each addition increases the value for all of us.

At least in theory.

The reality is that building a business based on connectedness can be tricky. There are many potential choke points.

Reston-based VeriSign touched on one recently in a conference call with analysts to discuss its quarterly earnings. VeriSign knows a thing or two about network effects; it has a contract to supply “.com” and “.net” domain names for the Internet.

The more online destinations, the more valuable the global Web, right?

Not necessarily. VeriSign has seen the growth in new domain names slow because another force — search engines — are constantly tweaking their algorithms to steer people to the best sites, thwarting those who might try to game the system by buying up lots of similar-sounding domain names.

Each tweak by Google triggers a kind of cat-and-mouse game to outwit the algorithms, creating more congestion on the network.

“We do know that they typically tend to find ways to adjust and adapt,” VeriSign chairman and chief executive D. James Bidzos told analysts.

VeriSign could add its own friction to the mix. Bidzos noted the company has built a portfolio of more than 200 patents and applications.

“We have, to date, not asserted any of our patents,” Bidzos said. “We’re reviewing that policy. We have a large number of patents — a portion of our patents read directly on registry operations, so we think that there are some things that are certainly worth looking at there.”

That sounds like a network effect of a different sort.

 
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