Flickr photo sharing introduces individually uploaded digital content—photos and images—to a global online community. When users upload photos to Flickr, they are usually sharing them not only with friends and family but with communities of Flickr users and the whole Internet as well. Because Flickr's default photo visibility setting is public rather than private, after its first year, more than 800f all photos were public.

Opening up user-generated and uploaded digital content is the next stage of the open-systems movement started by Linux and followed by Google's open application programming interfaces, or APIs. Open systems and open APIs have a significant impact on hardware and software developers, products, and services. Unrestricted uploaded digital content has a much broader impact on the mass-media market, the millions of broadband and mobile users, and consumers of all media.

This type of shared digital content sets off a positive direct network effect on the breadth and variety of the image database and sparks viral marketing. Each new member adds his uploaded digital photos to the completely user-generated collective Flickr photo database rather than maintaining (or hoarding) a proprietary cache of private photos. Of course, Flickr has given users the choice of sharing their photos openly while maintaining control over licensing and ownership. Almost 130 million photos have been posted by some 3 million registered users. Open photo sharing enables Flickr to be a completely user-generated image database. Clearly, this is the same route that YouTube took a few years later but with a slightly different target: a user-generated video database and open community for online public sharing.

"Burn rate" was a popular term during the dot-com boom. Because economies of scale were a critical advantage of the Web, the general idea was to grow a company's market share rapidly. The cash flow curve that looks like a J-curve, shown in , demonstrates what would happen as startup companies tried to buy new customers and market share with their investors' dollars.

The first part of the slope reflects the period when a company is spending more to build market share than it's making in revenue. The burn rate is initially steep, as the company spends money on marketing, hiring, and expanding infrastructure, but customers haven't yet rewarded that investment. As more customers come in, revenue should start to exceed expenditures, and the curve should fall less sharply, flatten, and then start climbing. When the curve climbs, cash flow is positive, and that will (hopefully) lead to eventual profit.

The most obvious business difference between Flickr's digital photo-sharing community and Netflix's DVD movie-sharing club is Netflix's customer acquisition costs. These costs were directly tied to how much it cost to build and keep the media-lending library/inventory/database up-to-date. Flickr still has an easier time of it than Netflix, despite Netflix's major changes, as shown in .

Flickr's digital photo database of 100 million-plus photos—850f which are tagged—is completely user-generated. Netflix's DVD inventory comes from suppliers that expect to be compensated. So, collective user value has an immediate and recognizable impact on the cost structure and cash flow requirements in growing a customer-focused business.

Flickr followed the Web 2.0 curve in rather than Netflix's Web 1.0 curve or a more typical physical-world curve.

In the late 1960s, the sociologist Stanley Milgram investigated what came to be known as the "small-world phenomenon." He conducted an experiment to find connections linking people in the United States who did not know each other. He gave a letter to someone in Nebraska, with instructions that the letter had to reach a particular person in Massachusetts. The first person was told only basic information about the "target," such as his address and occupation, and was told to give or send the letter to someone she knew on a first-name basis, and that person was given the same direction, to deliver the letter to the target as efficiently as possible. Anyone who received the letter would follow the same instructions until the target was reached. Through repeated trials, Milgram found that it took five or six "steps," on average, to get a letter from Nebraska to Massachusetts. This formed the basis for the well-known concept of "six drgrees of separation" (shown in ).

In his book Six Degrees (W. W. Norton & Company), Duncan Watts points out that certain paths were considerably shorter because the Milgram package reached a "hub" or "broker" node that shortcut the average six steps. illustrates this by putting an additional circle on the hubs or broker nodes and showing the different paths on the right and left side.

In the study of high-tech marketing and management of innovation, the Rogers Adoption Curve is often used to explain the rate of adoption of a new technology or product.

In 1962, Everett M. Rogers, in his book Diffusion of Innovations, gauged how populations adopt new products and technologies. He later suggested that five factors explain why some new products succeed with high growth rates and rapid customer adoption and others fail:

The hypergrowth of the Facebook user base continued as it developed, from 5 million online users in late October 2005 to more than 7.5 million in mid-April 2006.

Facebook enjoyed an exponential growth pattern much like the S-curve discussed in . It benefited from direct network usage effects: the more a user's friends use Facebook, the more valuable it is to the user. Additionally, peer pressure and social influence fuel the "contagion" and word-of-mouth effect. If your friends are not using Facebook, why should you?

College students didn't want to have to wait to see their friends show up and start using Facebook. So, speed of adoption is important to get to critical mass quickly.

Speed is also important in the race to reach a high enough market share to tip the market and lock out competitors. Facebook reached critical mass and tipped the market before other competitors entered the same space. The Korean social network site Cyworld seized a similar early-mover advantage in its national market. When first-movers in strong network-effects markets reach a dominant market share, they become hard to displace.

The usage patterns were impressive for the frequency as well as retention. Facebook's Mark Zuckerberg explained:

Social networks have always been a key part of sales and marketing. When you're trying to sell a product, you want to find key influencers. The acceleration that social networks provide in a Web 2.0 market has two major effects in this regard:

LinkedIn provides clear paths for its customers to invite other customers to join its system. Members who invite their friends receive clear and direct benefits, and joining the network costs nothing (except time) for the invitee. This makes it very easy for people to give or get a positive impression of LinkedIn, accelerating its growth tremendously. Facebook's viral marketing benefited from similar effects, amplified by its appeal to contained groups of people. shows how growth curves may vary by the nature of the kinds of people who spearhead the use of the system and their social influence.

To create the iPod, Apple first assembled a production ecosystem—a group of companies all over the world that contributed to circuit design, chipsets, the hard drive, screens, the plastic shell, and other technologies, as well as assembly of the final device.

Although many people still think of the manufacturing process as the key place to capture added value, the iPod demonstrates that Apple—the creator, brand name, and orchestrator—has actually figured out how to capture the lion's share of the value: 30%. The rest of the value is spread across a myriad of different contributions within the network of component providers and assemblers, none of them larger than 15%. Researchers, sponsored by the Sloan Foundation, developed an analytical framework for quantitatively calculating who captures the value from a successful global outsourced innovation like Apple's iPod.

A key ingredient of many Web 2.0 projects is their ability to collect information from users and then share it in a form that people are willing to pay for. The users themselves, in the course of doing what they want for their own projects, contribute value to the larger system. Creating systems where users want to do this can be difficult, requiring a different kind of analysis then when creating systems that present information to purely consumer users.

Even if you're in the middle of a project or business that's been running for years, it may help to start from a blank slate, a tabula rasa, much like zero-based accounting. Take a fresh look at your project, program, or business from the viewpoint of an individual customer. Getting to a user's perspective and then carefully tracking that single user's cash inflows and outflows—as well as the value created, captured, or wasted by an individual user's actions and interactions—is a focusing lens that helps you better appreciate your most valuable, active, and creative contributors. You may want to change your cost structure and model so that you can spot ways to reward your top contributors, incentivize and support collective user value, and monetize this value to make it beneficial for you and your users as quickly as possible.

First, take a look at the cash inflows and outflows of your business from the perspective of a single user. It's important to evaluate your costs and opportunities when working with new users because there may be a few different kinds to consider and multiple sources of revenue—and costs. (If you haven't yet started your business, of course, you have an opportunity to plan how you'd like these flows to work.) It's important to understand the basic value and cost of your users.

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