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Status as a Service (StaaS)

2019-03-06
  • Eugene Wei
    • 2019-02-26
    • Two starting principles: People are status-seeking monkeys; People seek out the most efficient path to maximizing social capital.
    • I seldom see social networks, some of the largest and fastest-growing companies in the history of the world, analyzed on the dimension of status or social capital.
    • We have no such methods for measuring the values and movement of social capital, at least not with anywhere near the accuracy or precision.
    • Despite this, most of the social media networks we study generate much more social capital than actual financial capital, especially in their early stages; almost all such companies have internalized one of the popular truisms of Silicon Valley, that in the early days, companies should postpone revenue generation in favor of rapid network scaling. Social capital has much to say about why social networks lose heat, stall out, and sometimes disappear altogether. And, while we may not be able to quantify social capital, as highly attuned social creatures, we can feel it.

    Traditional Network Effects Model of Social Networks

    • One of the fundamental lessons of successful social networks is that they must first appeal to people when they have few users. Typically this is done through some form of single-user utility.
    • This is the classic cold start problem of social.
    • The second fundamental lessons is that social networks must have strong network effects so that as more and more users come aboard, the network enters a positive flywheel of growth, a compounding value from positive network effects that leads to hockey stick growth
    • Even before social networks, we had Metcalfe’s Law on telecommunications networks: The value of a telecommunications network is proportional to the square of the number of connected users of the system (n^2)
    • But dig deeper and many many questions remain.
      • Why do some large social networks suddenly fade away, or lose out to new tiny networks?
      • Why do some new social networks with great single-player tools fail to transform into networks, while others with seemingly frivolous purposes make the leap?
      • Why do some networks sometimes lose value when they add more users? What determines why different networks stall out at different user base sizes?
      • Why do some networks cross international borders easily while others stay locked within specific countries?
      • Why, if Metcalfe’s Law holds, do many of Facebook’s clones of other social network features fail, while some succeed, like Instagram Stories?
    • What ties many of these explanations together is social capital theory, and how we analyze social networks should include a study of a social network’s accumulation of social capital assets and the nature and structure of its status games. In other words, how do such companies capitalize, either consciously or not, on the fact that people are status-seeking monkeys, always trying to seek more of it in the most efficient way possible?

    Utility vs. Social Capital Framework

    • I tend to use three axes to dissect social networks. [Social Capital, Utility, and Entertainment]
    • Utility doesn’t require much explanation, though we often use the term very loosely and categorize too many things as utility when they aren’t that useful. A social network like Facebook allows me to reach lots of people I would otherwise have a harder time tracking down, and that is useful. A messaging app like WhatsApp allows me to communicate with people all over the world without paying texting or incremental data fees, which is useful.
    • There are several different paths to success for social networks, but those which compete on the social capital axis are often more mysterious than pure utilities. Competition on raw utility tends to be Darwinian, ruthless, and highly legible. This is the world, for example, of communication services like messaging and video conferencing. Investing in this space also tends to be a bit more straightforward: how useful is your app or service, can you get distribution, etc.
    • The creation of a successful status game is so mysterious that it often smacks of alchemy. For that reason, entrepreneurs who succeed in this space are thought of us a sort of shaman
    • When modeling how successful social networks create a status game worth playing, a useful metaphor is one of the trendiest technologies: cryptocurrency.

    Social Networks as ICO’s

    • How is a new social network analogous to an ICO?
      • Each new social network issues a new form of social capital, a token.
      • You must show proof of work to earn the token.
      • Over time it becomes harder and harder to mine new tokens on each social network, creating built-in scarcity.
      • Many people, especially older folks, scoff at both social networks and cryptocurrencies.
    • Perhaps you’ve read a long and thoughtful response by a random person on Quora or Reddit, or watched YouTube vloggers publishing night after night, or heard about popular Vine stars living in houses together, helping each other shoot and edit 6-second videos. While you can outsource Bitcoin mining to a computer, people still mine for social capital on social networks largely through their own blood, sweat, and tears.
    • Perhaps, if you’ve spent time around today’s youth, you’ve watched with a mixture of horror and fascination as a teen snaps dozens of selfies before publishing the most flattering one to Instagram, only to pull it down if it doesn’t accumulate enough likes within the first hour. It’s another example of proof of work, or at least vigorous market research.
    • Almost every social network of note had an early signature proof of work hurdle. For Facebook it was posting some witty text-based status update. For Instagram, it was posting an interesting square photo. For Vine, an entertaining 6-second video. For Twitter, it was writing an amusing bit of text of 140 characters or fewer. Pinterest? Pinning a compelling photo. You can likely derive the proof of work for other networks like Quora and Reddit and Twitch and so on. Successful social networks don’t pose trick questions at the start, it’s usually clear what they want from you.
    • If you’ve ever joined one of these social networks early enough, you know that, on a relative basis, getting ahead of others in terms of social capital (followers, likes, etc.) is easier in the early days. […] The more people who follow you, the more followers you gain because of leaderboards and recommended follower algorithms and other such common discovery mechanisms.
    • It’s true that as more people join a network, more social capital is up for grabs in the aggregate. However, in general, if you come to a social network later, unless you bring incredible exogenous social capital (Taylor Swift can join any social network on the planet and collect a massive following immediately), the competition for attention is going to be more intense than it was in the beginning. Everyone has more of an understanding of how the game works so the competition is stiffer.

    Why Proof of Work Matters

    • Why does proof of work matter for a social network? If people want to maximize social capital, why not make that as easy as possible?
    • Value is tied to scarcity, and scarcity on social networks derives from proof of work. Status isn’t worth much if there’s no skill and effort required to mine it. It’s not that a social network that makes it easy for lots of users to perform well can’t be a useful one, but competition for relative status still motivates humans. Recall our first tenet: humans are status-seeking monkeys. Status is a relative ladder. By definition, if everyone can achieve a certain type of status, it’s no status at all, it’s a participation trophy.
    • Recall Twitter in the early days, when it was somewhat of a harmless but somewhat inert status update service. […] Early Twitter consisted mostly of harmless but dull life status updates, a lot of “is this thing on?” tapping on the virtual microphone. I guess I am in the camp of not caring about what you had for lunch after all.
    • What changed Twitter, for me, was the launch of Favstar and Favrd. […] What Favstar and Favrd did was surface really great tweets and rank them on a scoreboard, and that, to me, launched the performative revolution in Twitter. It added needed feedback to the feedback loop, birthing a new type of comedian, the master of the 140 character or less punchline (the internet has killed the joke, humor is all punchline now that the setup of the joke is assumed to be common knowledge thanks to Google).
    • Read Twitter today and hardly any of the tweets are the mundane life updates of its awkward pre-puberty years. We are now in late-stage performative Twitter, where nearly every tweet is hungry as hell for favorites and retweets, and everyone is a trained pundit or comedian. It’s hot takes and cool proverbs all the way down. The harmless status update Twitter was a less thirsty scene but also not much of a business.
    • Thirst for status is potential energy. It is the lifeblood of a Status as a Service business. To succeed at carving out unique space in the market, social networks offer their own unique form of status token, earned through some distinctive proof of work.
    • Conversely, let’s look at something like Prisma, a photo filter app which tried to pivot to become a social network. Prisma surged in popularity upon launch by making it trivial to turn one of your photos into a fine art painting with one of its many neural-network-powered filters.
      • It worked well. Too well.
      • Since almost any photo could, with one-click, be turned into a gorgeous painting, no single photo really stands out. The star is the filter, not the user, and so it didn’t really make sense to follow any one person over any other person. Without that element of skill, no framework for a status game or skill-based network existed. It was a utility that failed at becoming a Status as a Service business.
    • So, to answer an earlier question about how a new social network takes hold, let’s add this: a new Status as a Service business must devise some proof of work that depends on some actual skill to differentiate among users. If it does, then it creates, like an ICO, some new form of social capital currency of value to those users.

    Facebook’s Original Proof of Work

    • You might wonder, how did Facebook differentiate itself from MySpace?
    • In fact, Facebook launched with one of the most famous proof of work hurdles in the world: you had to be a student at Harvard.
    • By rolling out, first to Ivy League schools, then to colleges in general, Facebook scaled while maintaining a narrow age dispersion and exclusivity based around educational credentials.

    Social Capital ROI

    • If a person posts something interesting to a platform, how quickly do they gain likes and comments and reactions and followers?
    • Young people, with their much higher usage rate on social media, are the most sensitive and attuned demographic to the payback period and ROI on their social media labor.
    • So, for example, young people tend not to like Twitter but do enjoy Instagram.
      • It’s not that Twitter doesn’t dole out the occasional viral supernova; every so often someone composes a tweet that goes over 1K and then 10K likes or retweets […]. But it’s not common, and most tweets are barely seen by anyone at all. Pair that with the fact that young people’s bias towards and skill advantage in visual mediums over textual ones and it’s not surprising Instagram is their social battleground of preference […].
      • Instagram, despite not having any official reshare option, allows near unlimited hashtag spamming, and that allows for more deterministic, self-generated distribution.
    • The gradient of your network’s social capital ROI can often govern your market share among different demographics.
    • I can still remember posting the same photos to Flickr and Instagram for a while and seeing how quickly the latter passed the former in feedback. If I were an investor or even an employee, I might have something like a representative basket of content that I’d post from various test accounts on different social media networks just to track social capital interest rates and liquidity among the various services.
    • Some features can increase the reach of content on any network. A reshare option like the retweet button is a massive accelerant of virality on apps where the social graph determines what makes it into the feed. In an effort to increase engagement, Twitter has, over the years, become more and more aggressive to increase the liquidity of tweets.
    • TikTok is an interesting new player in social media because its default feed, For You, relies on a machine learning algorithm to determine what each user sees; the feed of content from by creators you follow, in contrast, is hidden one pane over. If you are new to TikTok and have just uploaded a great video, the selection algorithm promises to distribute your post much more quickly than if you were on sharing it on a network that relies on the size of your following, which most people have to build up over a long period of time. Conversely, if you come up with one great video but the rest of your work is mediocre, you can’t count on continued distribution on TikTok since your followers live mostly in a feed driven by the TikTok algorithm, not their follow graph.
      • The result is a feedback loop that is much more tightly wound that that of other social networks, both in the positive and negative direction. Theoretically, if the algorithm is accurate, the content in your feed should correlate most closely to quality of the work and its alignment with your personal interests rather than the drawing from the work of accounts you follow. At a time when Bytedance is spending tens (hundreds?) of millions of marketing dollars in a bid to acquire users in international markets, the rapid ROI on new creators' work is a helpful quality in ensuring they stick around.
      • This development is interesting for another reason: graph-based social capital allocation mechanisms can suffer from runaway winner-take-all effects. In essence, some networks reward those who gain a lot of followers early on with so much added exposure that they continue to gain more followers than other users, regardless of whether they’ve earned it through the quality of their posts. One hypothesis on why social networks tend to lose heat at scale is that this type of old money can’t be cleared out, and new money loses the incentive to play the game.
    • It’s not that the existence of old money or old social capital dooms a social network to inevitable stagnation, but a social network should continue to prioritize distribution for the best content, whatever the definition of quality, regardless of the vintage of user producing it. Otherwise a form of social capital inequality sets in, and in the virtual world, where exit costs are much lower than in the real world, new users can easily leave for a new network where their work is more properly rewarded and where status mobility is higher.
    • The same way many social networks track keystone metrics like time to X followers, they should track the ROI on posts for new users. It’s likely a leading metric that governs retention or churn. It’s useful as an investor, or even as a curious onlooker to test a social networks by posting varied content from test accounts to gauge the efficiency and fairness of the distribution algorithm.
    • Whatever the mechanisms, social networks must devote a lot of resources to market making between content and the right audience for that content so that users feel sufficient return on their work. Distribution is king, even when, or especially when it allocates social capital.

    Why copying proof of work is lousy strategy for status-driven networks

    • We often see a new social network copy a successful incumbent but with a minor twist thrown in. […] Most of these near clones have and will fail. The reason that matching the basic proof of work hurdle of an Status as a Service incumbent fails is that it generally duplicates the status game that already exists. By definition, if the proof of work is the same, you’re not really creating a new status ladder game, and so there isn’t a real compelling reason to switch when the new network really has no one in it.
    • For example, we have multiple messaging apps that became viable companies just by capturing a particular geographic market through localized network effects. We don’t have one messaging app to rule them all in the world, but instead a bunch that have won in particular geographies. After all, the best messaging app in most countries or continents is the one most other people are already using there.
    • But in the same market? Copying a proof of work there is a tough road. The first mover advantage is also such that the leader with the dominant graph and the social capital of most value can look at any new features that fast followers launch and pull a reverse copy, grafting them into their more extensive and dominant incumbent graph.
    • I once wrote about social networks that the network’s the thing; that is, the composition of the graph once a social network reaches scale is its most unique quality. I would update that today to say that it’s the unique combination of a feature and a specific graph that is any network’s most critical competitive advantage. Copying some network’s feature often isn’t sufficient if you can’t also copy its graph, but if you can apply the feature to some unique graph that you earned some other way, it can be a defensible advantage. Nothing illustrates this better than Facebook’s attempts to win back the young from Snapchat […].The problem with copying Snapchat is that, well, the reason young people left Facebook for Snapchat was in large part because their parents had invaded Facebook. You don’t leave a party with your classmates to go back to one your parents are throwing just because your dad brings in a keg and offer to play beer pong.

    The Greatest Social Capital Creation Event in Tech History

    • Before News Feed, if you were on, say MySpace, or even on a Facebook before News Feed launched, you had to browse around to find all the activity in your network. Only a demographic of a particular age will recall having to click from one profile to another on MySpace while stalking one’s friends. It almost seems comical in hindsight, that we’d impose such a heavy UI burden on social media users. Can you imagine if, to see all the new photos posted in your Instagram network, you had to click through each profile one by one to see if they’d posted any new photos? I feel like my parents talking about how they had to walk miles to grade school through winter snow wearing moccasins of tree bark[…].
    • By merging all updates from all the accounts you followed into a single continuous surface and having that serve as the default screen, Facebook News Feed simultaneously increased the efficiency of distribution of new posts and pitted all such posts against each other in what was effectively a single giant attention arena, complete with live updating scoreboards on each post. It was as if the panopticon inverted itself overnight, as if a giant spotlight turned on and suddenly all of us performing on Facebook for approval realized we were all in the same auditorium, on one large, connected infinite stage, singing karaoke to the same audience at the same time.
    • It’s difficult to overstate what a momentous sea change it was for hundreds of millions, and eventually billions, of humans who had grown up competing for status in small tribes, to suddenly be dropped into a talent show competing against EVERY PERSON THEY HAD EVER MET.
    • Remember, status derives value from some type of scarcity. What is the one fundamental scarcity in the age of abundance? User attention. The launch of an algorithmic feed raises the stakes of the social media game. Even if someone follows you, they might no longer see every one of your posts.
    • As humans, we intuitively understand that some galling percentage of our happiness with our own status is relative. What matters is less our absolute status than how are we doing compared to those around us. By taking the scope of our status competitions virtual, we scaled them up in a way that we weren’t entirely prepared for. Is it any surprise that seeing other people signaling so hard about how wonderful their lives are decreases our happiness?
    • A social network like Path attempted to limit your social graph size to the Dunbar number, capping your social capital accumulation potential and capping the distribution of your posts. The exchange, they hoped, was some greater transparency, more genuine self-expression. The anti-Facebook. Unfortunately, as social capital theory might predict, Path did indeed succeed in becoming the anti-Facebook: a network without enough users. Some businesses work best at scale, and if you believe that people want to accumulate social capital as efficiently as possible, putting a bound on how much they can earn is a challenging business model, as dark as that may be.

    Why Social Capital Accumulation Skews Young

    • I’d love to see a graph of social capital assets under management by user demographic. I’d wager that we’d see that young people, especially those from their teens, when kids seem to be given their first cell phones, through through early 20’s, are those who dominate the game.
    • While we’re all status-seeking monkeys, young people tend to be the tip of the spear when it comes to catapulting new Status as a Service businesses, and may always will be. A brief aside here on why this tends to hold.
    • One is that older people tend to have built up more stores of social capital. A job title, a spouse, maybe children, often a house or some piece of real estate, maybe a car, furniture that doesn’t require you to assemble it on your own, a curriculum vitae, one or more college degrees, and so on.
    • Secondly, because of their previously accumulated social capital, adults tend to have more efficient means of accumulating even more status than playing around online. Maintenance of existing social capital stores is often a more efficient use of time than fighting to earn more on a new social network given the ease of just earning interest on your sizeable status reserves.
    • Young people look at so many of the status games of older folks—what brand of car is parked in your garage, what neighborhood can you afford to live in, how many levels below CEO are you in your org—and then look at apps like Vine and Musical.ly, and they choose the only real viable and thus optimal path before them. Remember the second tenet: people maximize their social capital the most efficient way possible. Both the young and old pursue optimal strategies.
    • old people tend to be hesitant about mastering new skills in general, including new status games, especially if they involve bewildering new technology. […] Perhaps old dogs don’t learn new tricks because they are closer to death, and the period to earn a positive return on that investment is shorter. […] I look forward to this period of my life when, through the unavoidable spectre of mortality, I will naturally settle into my DGAF phase of courageous truth-telling.
    • Lastly, young people have a surplus of something which most adults always complain they have too little of: time. The hurdle rate on the time of the young is low, and so they can afford to spend some of that surplus exploring new social networks, mining them to see if the social capital returns are attractive, whereas most adults can afford to wait until a network has runaway product-market fit to jump in.
    • These modern forms of social capital are like new money. Not surprisingly, then, older folks, who are worse at accumulating these new badges than the young, often scoff at those kids wasting time on those apps, just as old money from the Upper West and Upper East Sides of New York look down their noses at those hoodie-wearing new money billionaire philistines of Silicon Valley.

    “I contain multitudes” (said the youngblood)

    • Incidentally, teens and twenty-somethings, more so than the middle-aged and elderly, tend to juggle more identities. […] Anyone who has ever sent a text meant for their schoolmates to their parents, or emailed a boss or coworker something meant for their happy hour crew knows the treacherous nature of context collapse.
    • Add to that this younger generation’s preference for and facility with visual communication and it’s clearly why the preferred social network of the young is Instagram and the preferred messenger Snapchat, both preferable to Facebook. Instagram because of the ease of creating multiple accounts to match one’s portfolio of identities, Snapchat for its best in class ease of visual messaging privately to particular recipients. The expiration of content, whether explicitly executed on Instagram (you can easily kill off a meme account after you’ve outgrown it, for example), or automatically handled on a service like Snapchat, is a must-have feature for those for whom multiple identity management is a fact of life.
    • Facebook, with its explicit attachment to the real world graph and its enforcement of a single public identity, is just a poor structural fit for the more complex social capital requirements of the young.

    Common Social Network Arcs

    First utility, then social capital

    • This is the well-known “come for the tool, stay for the network” path. Instagram is a good example here given its growth from filter-driven utility to social photo sharing behemoth. Today, I can’t remember the last time I used an Instagram filter.

    First social capital, then utility

    • Foursquare was this for me. In the beginning, I checked in to try to win mayorships at random places. These days, Foursquare is trying to become more of a utility, with information on places around you, rather than just a quirky distributed social capital game.
    • IMDb, Wikipedia, Reddit, and Quora are more prominent examples here. Users come for the status, and help to build a tool for the commons.

    Utility, but no social capital

    • Most messaging apps fall into this category. They help me to reach people I already know, but they don’t introduce me to too many new people, and they aren’t really status games with likes and follows.
    • [This set of tools] is home to some businesses with over a billion users, but in minimizing social capital and competing purely on utility-derived network effects, this tends to be a brutally competitive battleground where even the slimmest moat is fought for with blood and sweat, especially in the digital world where useful features are trivial to copy.

    Social capital, but little utility

    • The most interesting company to debate in this quadrant is clearly Facebook. I’m not arguing that Facebook doesn’t have utility, because clearly it does in some obvious ways. In some markets, it is the internet. Messenger is clearly a useful messaging utility for a over a billion people.
    • However, the U.S. is a critical market for Facebook, especially when it comes to monetization, and so it’s worth wondering how things might differ for Facebook today if it had succeeded in pushing further out on the utility axis. Many people I know have just dropped Facebook from their lives this past year with little impact on their day-to-day lives.

    Both social capital and utility simultaneously

    • Most social networks will offer some mix of both, but none more so than WeChat.
    • While I hear of people abandoning Facebook and never looking back, I can’t think of anyone in China who has just gone cold turkey on WeChat. It’s testament to how much of an embedded utility WeChat has become that to delete it would be a massive inconvenience for most citizens.

    Social Network Asymptote 1: Proof of Work

    • How do you tell when a Status as a Service business will stop growing? What causes networks to suddenly hit that dreaded upper shoulder in the S-curve if, according to Metcalfe’s Law, the value of a network grows in proportion to the square of its users? What are the missing variables that explain why networks don’t keep growing until they’ve captured everyone?
    • To return to our cryptocurrency analogy, the choice of your proof of work is by definition an asymptote because the skills it selects for are not evenly distributed.
      • You’ve probably watched a TikTok video, but have you tried to make one?
      • You may possess, in your estimation, too much self-dignity to wallow in cringe. Your arthritic joints may not be capable of executing Orange Justice. Whatever the reason, TikTok’s creator community is ultimately capped by the nature of its proof of work, no matter how ingenious its creative tools.
      • The same is true of Twitter: the number of people who enjoy crafting witty 140 and now 280-character info nuggets is finite.
    • Every network has some ceiling on its ultimate number of contributors, and it is often a direct function of its proof of work.
    • Of course, the value and total user size of a network is not just a direct function of its contributor count. Whether you believe in the 1/9/90 rule of social networks or not, it’s directionally true that any network has value to people besides its creators. In fact, for almost every network, the number of lurkers far exceeds the number of active participants. Life may not be a spectator sport, but a lot of social media is.
    • If you want to know the terminal value of a network, the type of proof of work is a key variable to consider. If you want to know […] what the cap of active users is for any social network, first ask yourself how many people have the skill and interest to compete in that arena.

    Social Network Asymptote 2: Social Capital Inflation and Devaluation

    • Why do some social networks, given Metcalfe’s Law and its related network effects theories, not only stop growing but even worse, contract and wither away?

    Social Capital Interest Rate Hikes

    • One of the common traps is the winner’s curse for social media. If a social network achieves enough success, it grows to a size that requires the imposition of an algorithmic feed in order to maintain high signal-to-noise for most of its users. It’s akin to the Fed trying to manage inflation by raising interest rates.
    • The problem, of course, is that this now diminishes the distribution of any single post from any single user. One of the most controversial of such decisions was Facebook’s change to dampen how much content from Pages would be distributed into the News Feed. […] No longer would every one of your Page followers see every one of your posts. Facebook did what central banks do to combat inflation and raised interest rates on borrowing attention from the News Feed.
    • Was such a move inevitable? Not necessarily, but it was always likely. That’s because there is one scarce resource which is a natural limit on every social network and media company today, and that is user attention. That a social network shares some of that attention with its partners will always be secondary to accumulating and retaining that attention in the first place.

    Social Capital Deflation: Scarcity Precarity or the Groucho Marx Conundrum

    • Another existential risk that is somewhat unique to social networks is this: network effects are powerful, but ones which are social in nature have the unfortunate quality of being just as ferocious in reverse.
    • Why do social network effects reverse? Utility, the other axis by which I judge social networks, tends to be uncapped in value. It’s rare to describe a product or service as having become too useful. That is, it’s hard to over-serve on utility.
    • Social network effects are different. If you’ve lived in New York City, you’ve likely seen, over and over, night clubs which are so hot for months suddenly go out of business just a short while later. Many types of social capital have qualities which render them fragile. Status relies on coordinated consensus to define the scarcity that determines its value. Consensus can shift in an instant. Recall the friend in Swingers, who, at every crowded LA party, quips, “This place is dead anyway.” Or recall the wise words of noted sociologist Groucho Marx: “I don’t care to belong to any club that will have me as a member.”
    • The Groucho Marx effect doesn’t take effect immediately. In the beginning, a status hierarchy requires lower status people to join so that the higher status people have a sense of just how far above the masses they reside. It’s silly to order bottle service at Hakkasan in Las Vegas if no one is sitting on the opposite side of the velvet ropes; a leaderboard with just a single high score is meaningless.
    • When the definition of status is distributed, often one minority has disproportionate sway. If that group, the cool kids, pulls the ripcord, everyone tends to follow them to the exits. In fact, it’s usually the most high status or desirable people who leave first, the evaporative cooling effect of social networks. At that point, that product or service better have moved as far out as possible on the utility axis or the velocity of churn can cause a nose bleed.
    • Fashion is one of the most interesting industries for having understood this recurring boom and bust pattern in network effects and taken ownership of its own status devaluation cycles. Some strange cabal of magazine editors and fashion designers decide each season to declare arbitrarily new styles the fashion of the moment, retiring previous recommendations before they grow stale. There is usually no real utility change at all; functionally, the shirt you buy this season doesn’t do anything the shirt you bought last season still can’t do equally well. The industry as a whole is simply pulling the frontier of scarcity forward like a wave we’re all trying to surf.
    • This season, the color of the moment might be saffron. Why? Because someone cooler than me said so. Tech tends to prioritize growth at all costs given the non-rival, zero marginal cost qualities of digital information. In a world of abundance, that makes sense. However, technology still has much to learn from industries like fashion about how to proactively manage scarcity, which is important when goods are rivalrous. Since many types of status are relative, it is, by definition, rivalrous. There is some equivalent of crop rotation theory which applies to social networks, but it’s not part of the standard tech playbook yet.
    • I would be shocked if Facebook did not, at one point, contemplate a version of its app that opened to the camera first [like Snapchat does], instead of the News Feed, considering how many odd clones of other apps it’s considered in the past. If so, it’s good they never shipped it, because for young people, publishing to a graph that still contained their parents would’ve still been prohibitive, while for old folks who aren’t as biased towards visual mediums, such a UI would’ve been suboptimal. It would’ve been a disastrous lose-lose for Facebook.
    • [In the real world and in Status as a Service businesses you can be trapped by] path dependent user composition. An fervent early adopter group can define who a new social network seems to be for, merely by flooding the service with content they love.
    • When it comes to evaporative cooling, two [novel statements of the Groucho Marx quote] come to mind: “I don’t want to belong to any club that will have those people as a member” and “I don’t want to belong to any club that those people don’t want to be a member of.”

    Mitigating Social Capital Devaluation Risk, and the Snapchat Strategy

    • In a leaked memo late last year, Evan Spiegel wrote about how one of the core values of Snapchat is to make it the fastest way to communicate.
      • This clarifies Snapchat’s strategy on the 3 axes of my social media framework: Snapchat intends to push out further on the utility axis at the expense of the social capital axis which, as we’ve noted before, is volatile ground to build a long-term business on.
    • Anyone who has studied kids using Snapchat know that it’s just as integral a part of high school status and FOMO wars as Facebook, and arguably more so now that those kids largely don’t use Facebook.
    • Remember Snapchat’s original Best Friends list? […] This was just about as pure a status game feature as could be engineered for teens. Not only did it show the top three people you Snapped with most frequently, you could look at who the top three best friends were for any of your contacts. Essentially, it made the hierarchy of everyone’s “friendships” public, making the popularity scoreboard explicit.
    • As with aggregate follower counts and likes, the Best Friends list was a mechanism for people to accumulate a very specific form of social capital. From a platform perspective, however, there’s a big problem with this feature: each user could only have one best friend. It put an artificial ceiling on the amount of social capital one could compete for and accumulate.
    • In a clever move to unbound social capital accumulation and to turn a zero-sum game into a positive sum game, broadening the number of users working hard or engaging, Snapchat deprecated the very popular Best Friends list and replaced it with streaks.
      • If you and a friend Snap back and forth for consecutive days, you build up a streak which is tracked in your friends list. Young people quickly threw their heart and souls into building and maintaining streaks with their friends. This was literally proof of work as proof of friendship, quantified and tracked.
      • Streaks, of course, have the wonderful quality of being unbounded. You can maintain as many streaks as you like. If you don’t think social capital has value, you’ve never seen, as I have, a young person sobbing over having to go on vacation without their phone, or to somewhere without cell or wifi access, only to see all their streaks broken. Some kids have resorted, when forced to go abroad on a vacation, to leaving their phone with a friend who helps to keep all the streaks alive, like some sort of social capital babysitter or surrogate.
      • What’s hilarious is how efficiently young people maintain streaks. It’s a daily ritual that often consists of just quickly running down your friend list and snapping something random, anything, just to increment the streak count. My nephew often didn’t even bother framing the camera up, most his streak-maintenance snaps were blurry pics of the side of his elbow, half his shoulder, things like that.
      • Of course, as evidence of the fragility of social capital structures, streaks have started to lose heat. Many younger users of Snapchat no longer bother with them. Maintaining social capital games is always going to be a volatile game, prone to sudden and massive deflationary events, but while they work, they’re a hell of a drug. They also can be useful; for someone Snapping frequently, like all teens do, having a best friends list sorted to the top of your distribution list is a huge time-saver. Social capital and utility often can’t be separated cleanly.
    • Still, given the precarious nature of status, and given the existence of Instagram which has always been a more unabashed social capital accumulation service, it’s not a bad strategy for Snapchat to push out towards increased utility in messaging instead. The challenge, as anyone competing in the messaging space knows, is that creating any durable utility advantage is brutally hard. In the game theory of tech competition, it’s best to assume that any feature that can be copied will. And messaging may never be, from a profit perspective, the most lucrative of businesses.

    Lengthening the Half-life of Status Games

    • The danger of having a proof of work burden that doesn’t change is that eventually, everyone who wants to mine for that social currency will have done so, and most of it will be depleted. At that point, the amount of status-driven potential energy left in the social network flattens. If, at that inflection, the service hasn’t made headway in adding a lot of utility, the network can go stale.
    • Doing so is a delicate balance, because it’s quite possible that Facebook is so many things to so many people that it isn’t really anything to anyone anymore. It is hard to be a club that admits everyone but still wants to offer a coherent status ladder. You can argue Facebook doesn’t want to be in the status game, but if so, it had better add a lot more utility.
    • Video games illuminate the proof of work cycle better than almost any category, it is the drosophila of this type of analysis given its rapid life cycle and overt skill-versus-reward tradeoffs. Why is it, for example, that big hit games tend to have a life cycle of about 18 months?
      • A new game offers a whole new set of levels and challenges, and players jump into the status competition with gusto. But, eventually, skill differentiation tends to sort the player base cleanly. Players rise to the level of their mastery and plateau. Simultaneously, players become overly familiar with the game’s challenges; the dopamine hit of accomplishment dissipates.
      • A franchise like, say, Call of Duty, learns to manage this cycle by investing hundreds of millions of dollars to issue a new version of the game every regularly. Each game offers familiarity but a new set of levels and challenges and environments. It’s the circle of life.
      • Some games can lengthen the cycle. For example, casino games in Vegas pay real money to set an attractive floor on the ROI of playing. Some MMORPGs offer other benefits to players, like a sense of community, which last longer than the pure skill challenge of playing the game. Looking at some of the longer lasting video game franchises like World of Warcraft, League of Legends, and Fortnite reveal a lot about how a parallel industry has succeeded in lengthening the productive middle age of its top properties.

    Why Some Companies Will Always Struggle with Social

    • Some people find status games distasteful. Despite this, everyone I know is engaged in multiple status games.
    • Have I met a few people in my life who are seemingly above all status games? Yes, but they are so few as to be something akin to miracles, and damn them for making the rest of us feel lousy over our vanity.
    • The number of people who claim to be above status games exceeds those who actually are. I believe their professed distaste to be genuine, but even if it isn’t, the danger of their indignation is that they actually become blind to how their product functions in some ways as Status as a Service business.
    • Many of our tech giants, in fact, are probably always going to be weak at social absent executive turnover or smart acquisitions.
    • Take Apple, which has actually tried before at building out social features.
      • Since Apple positions itself as the leading advocate for user privacy, it will always be constrained on building out social features since many of them trade off against privacy.
      • This is, of course, exactly why many people love and choose Apple, and they have more cash than they can spend. No one need feel sorry for Apple, and as is often the case, a company’s strengths and weaknesses stem from the same quality in their nature.
    • The same inherent social myopia applies to Google which famously took a crack at building a social network of its own with Google+.
      • Like Apple, the team in Mountain View has always seemed more suited to building out networks of utility rather than social capital. Google is often spoken of as a company where software engineers have the most power. Engineers, in my experience, are driven by logic, and status-centered products are distasteful or mysterious to them, often both. Google will probably always be weak at social, but as with Apple, they compensate with unique strengths.
      • Oddly enough, despite controlling one of the two dominant mobile platforms, they have yet to be able to launch a successful messaging app. That’s about as utility-driven a social application as there is, akin to email where Google does have sizeable market share with GMail. It’s a shame as Google could probably use social as an added layer of utility in many of their products, especially in Google Maps.
    • However, there’s another reason that senior execs at most companies, even social networks, are ill-suited to designing and leveraging social features. It’s a variant of winner’s curse.

    Let Them Eat Cake

    • You’ll hear it again and again, the easiest way to empathize with your users is to be the canonical user yourself.
    • With social networks, one of the problems with seeing your own service through your users’ eyes is that every person has a different experience given who they follow and what the service’s algorithm feeds them. When you have hundreds of millions or even billions of users, across different cultures, how do you accurately monitor what’s going on? Your metrics may tell you that engagement is high and growing, but what is the composition of that activity, and who is exposed to what parts?
    • Until we have metrics that distinguish between healthy and unhealthy activity, social network execs largely have to steer by anecdote, by licking a finger and sticking it in the air to ascertain the direction of the wind. Some may find it hard to believe when execs plead ignorance when alerted of the scope of problems on their services, but I don’t. When it comes to running a community, the thickest veil of ignorance is the tidy metrics dashboard that munges hundreds, thousands, or maybe even millions of cohorts into just a handful.
    • But perhaps even more confounding is that executives at successful social networks are some of the highest status people in the world. Forget first world problems, they have .1% or .001% problems. On a day-to-day basis, they hardly face a single issue that their core users grapple with constantly. Engagement goals may drive them towards building services that are optimized as social capital games, but they themselves are hardly in need of more status, except of a type they won’t find on their own networks.
      • The one exception may be Jack Dorsey, as any tweet he posts now attracts an endless stream of angry replies. It’s hard to argue he doesn’t understand firsthand the downside risk of a public messaging protocol. Maybe, for victims of harassment on Twitter, we need a Jack that is less thick-skinned and stoic, not more.

    The Social Capital - Financial Capital Exchange

    • I haven’t found a clean definition of social capital but think of it as capital that derives from networks of people. If you want to explore the concept further, this page has a long list of definitions from literature. The fact is, I have deep faith in all my readers when it comes to social capital that, like Supreme Court Justice Potter Stewart once said about pornography, you “know it when you see it.”
    • Perhaps the easiest way to spot social capital is to look at places where people trade it for financial capital.
    • Perhaps the most oft-cited example of a social-to-financial-capital exchange is the type pulled off by influencers on Instagram and YouTube. I’ve met models who, in another life, might be mugging outside an Abercrombie and Fitch or working the front door at some high end restaurant in Los Angeles, but instead now pull down over 7 figures a year for posting photos of themselves luxuriating in specific resorts, wearing and using products from specific sponsors.
    • Similarly, we see flows the other direction. People buying hundreds of thousands of followers on Twitter is one of the cleanest examples of trading financial capital for social capital. Later, that social capital can be converted back into financial capital any number of ways, including charging sponsors for posts. Depending on the relative value in both directions there can be arbitrage.
    • Asia, where monetization models differ for a variety of cultural and contextual reasons, provides an even cleaner valuation of social capital. There, many social networks allow you to directly turn your social capital into financial capital, without leaving the network. For example, on live-streaming sites like YY, you can earn digital gifts from your viewers which cost actual money, the value of which you split with the platform.
    • Agencies have sprung up in China to develop and manage influencers, almost like farm systems in baseball with player development and coaches. The speed at which social capital can be converted into your own branded product lines is accelerating by leaps and bounds, and nowhere more so than in China.
    • Meanwhile, on Twitter, if one of your tweets somehow goes massively viral, you still have to attach a follow-up tweet with a link to your GoFundMe page, a vulgar monetization hack in comparison. It’s China, not the U.S., that is the bleeding edge of influencer industrialization.

    Social Capital Accumulation and Storage

    • As with cryptocurrency, it’s no use accumulating social capital if you can’t take ownership of it and store it safely. Almost all successful social networks are adept at providing both accumulation and storage mechanisms.
    • It may sound obvious now, but consider the many apps and services that failed to provide something like this and saw all their value leak to other social networks.
      • Hipstamatic […] charged for its filters and had no profile pages, social network, or feed.
      • Hipstamatic provided utility but captured none of the social capital that came from the use of its filters.
      • Contrast this with a company like Musical.ly […]. They came up with a unique proof of work burden, but unlike Hipstamatic, they wanted to capture the value of the social capital that its users would mine by creating their musical skits. They didn’t want these skits to just be uploaded to Instagram or Facebook or other networks.
      • Therefore, they created a feed within the app, to give its best users distribution for their work. By doing so, Musical.ly owned that social capital it helped generate. If your service is free, the best alternative to capturing the value you create is to own the marketplace where that value is realized and exchanged.
    • For the individual user, we’ve standardized on a few basic social capital accumulation mechanisms. There is the profile, to which your metrics attach, most notably your follower count and list. Followers or friends are the atomic unit of many social networks, and the advantage of followers as a measure is it generally tends to only grow over time. It also makes for an easy global ranking metric.
    • Local scoring of social capital at the atomic level usually exists in the form of likes of some sort, one of the universal primitives of just about every social network. These are more ephemeral in nature given the nature of feeds, which tend to prioritize distribution of more recent activity, but most social networks have some version of this since followers tend to accumulate more slowly.
    • Some networks allow for accelerated distribution of posts through resharing, like retweeting (with many unintended consequences, but that’s a discussion for another day). Some also allow comments, and there are other network-specific variants, but most of these are some form of social capital that can attach to posts.
    • It’s instructive to examine those social networks which make such social capital accumulation difficult.
      • [Take] Whisper or Secret. The premise of such social networks was that anonymity would enable users to share information and opinions they would otherwise be hesitant to be associated with. But, as is often the case, that strength turned out to be a weakness, because users couldn’t really claim any of the social capital they’d created there. Many of the things written on these networks were so toxic that to claim ownership of them would be social capital negative in the aggregate.
      • A network like Reddit solved this through its implementation of karma, but it’s fair to say that it’s also been a long struggle for Reddit to suppress the dark asymmetric incentives unlocked by detaching social capital from real-life identity and reputation.
    • For any single user, the stickiness of a social network often correlates strongly with the volume of social capital they’ve amassed on that network. People sometimes will wholesale abandon social networks, but it’s rare unless the status earned there has undergone severe deflation.
    • Social capital does tend to be non-fungible which also tends to make it easier to abandon ship. If your Twitter followers aren’t worth anything on another network, it’s less painful to just walk away from the account if it isn’t worth the trouble anymore. It’s strange to think that social networks like Twitter and Facebook once allowed users to just wholesale export their graphs to other networks since it allowed competing networks to jumpstart their social capital assets in a massive way, but that only goes to show how even some of the largest social networks at the time underestimated the massive value of their social capital assets.
    • The restrictions on porting graphs is a positive from the perspective of the incumbent social networks, but from a user point-of-view, it’s frustrating. Given the difficulty of grappling with social networks given the consumer welfare standard for antitrust, an option for curbing the power of massive network effects businesses is to require that users be allowed to take their graph with them to other networks (as many have suggested). This would blunt the power of social networks along the social capital axis and force them to compete more on utility and entertainment axes.

    Social Capital Arbitrage

    • Because social networks often attract different audiences, and because the configuration of graphs even when there are overlapping users often differ, opportunities exist to arbitrage social capital across apps.
    • A prominent user of this tactic was @thefatjewish, the popular Instagram account (his real name was Josh Ostrovsky). He accumulated millions of followers on Instagram in large part by taking other people’s jokes from Twitter and other social networks and then posting them as his own on Instagram. Not only did he rack up followers and likes by the millions, he even got signed with CAA!
    • As long as we have multiple social networks that don’t quite work the same way, there will continue to be these social media arbitragers copying work from one network and to a different network to accumulate social capital on closing the distribution gap. Before the internet, men resorted to quoting movies or Mitch Hedberg jokes in conversation, to steal a bit of personality and wit from a more gifted comedian. This is the modern form of that, supercharged with internet-scale reach.
    • At some level, a huge swath of social media posts are just attempts to build status off of someone else’s work. The two tenets at the start of this article predict that this type of arbitrage will always be with us. Consider someone linking to an article from Twitter or Facebook, or posting a screenshot of a paragraph from someone else’s book. The valence of the reaction from the original creators seems to vary according to how the spoils of resharing are divvied up.

    Social Capital Games as Temporary Energy Sources

    • Structured properly, social capital incentive structures can serve as an invaluable incentive. For example, curation of good content across the internet remains an neverending problem in this age of infinite content, so offering rewards for surfacing interesting things remains one of the oldest and most reliable marketplaces of the internet.
    • Some companies which aren’t typically thought of as social networks still turn to social capital games to solve a particular problem. On one Christmas vacation, I stumbled downstairs for a midnight snack and found my friend, a father of three, still up, typing on his laptop. What, I asked, was he doing still up when he had to get up in a few hours to take care of his kids? He was, he admitted sheepishly, banging out a litany of reviews to try to maintain his Yelp Elite status. To this day, some of my friends still speak wistfully about some of the Yelp Elite parties they attended back in the day.
    • Think of how many reviews Yelp accumulate in the early days just by throwing a few parties? It was, no doubt, well worth it, and at the point when it isn’t (what’s the marginal value of writing the, at last count, 9655th review of Ippudo in New York City?), it’s something easily dialed back or deprecated.
    • You can think of social capital accumulation incentives like these as ways to transform the potential energy of status into whatever form of kinetic energy your venture needs.

    Why Most Celebrity Apps Fail

    • From a social capital perspective, these create little value because they simply draw down upon the celebrity’s own status. Almost every person who joins just wants content from the eponymous celebrity. The volume of interaction between the users of the app themselves, the fans, is minimal to non-existent. Essentially these apps are self-owned distribution channels for the stars, and as such, they tend to be vanity projects rather than durable assets.

    Conclusion: Everybody Wants to Rule the World

    • That many of the largest tech companies are, in part, status as a service businesses, is not often discussed. Most people don’t like to admit to being motivated by status, and few CEO’s are going to admit that the job to be done for their company is stroking people’s egos.
    • From a user perspective, people are starting to talk more and more about the soul-withering effects of playing an always-on status game through the social apps on their always connected phones. You could easily replace Status as a Service with FOMO as a Service. It’s one reason you can still meet so many outrageously wealthy people in Manhattan or Silicon Valley who are still miserable.
    • This piece is not my contribution to the well-trod genre of Medium thinkpieces counseling stoicism and Buddhism or transcendental meditation or deleting apps off of your phone to find inner peace. There is wisdom in all of those, but if I have anything to offer on that front, it’s this: if you want control of your own happiness, don’t tie it to someone else’s scoreboard.
    • Yet, I come not to bury Caesar, but also not to praise him. Rather, as Emily Wilson says at the start of her brilliant new translation of The Odyssey, “tell me about a complicated man.” So much of the entire internet was built on a foundation of social capital, of intangible incentives like reputation. Before the tech giants of today, I combed through newsgroups, blogs, massive FAQs, and countless other resources built by people who felt, in part, a jolt of dopamine from the recognition that comes from contributing to the world at large. At Amazon, someone coined a term for this type of motivational currency: egoboo (short for, you guessed it, egoboost). Something like Wikipedia, built in large part on egoboo, is a damned miracle. I don’t want to lose that. I don’t think we have to lose that.
    • Of course, like the Force, status is equally potent as fuel for the darkest, cruelest parts of human nature. If you look at the respective mission statements of Twitter and Facebook—“to give everyone the power to create and share ideas and information instantly without barriers” and “to give people the power to share and make the world more open and connected”—what is striking is the assumption that these are fundamentally positive outcomes. There’s no questioning of what the downsides of connecting everyone and enabling instant sharing of information among anyone might be.
    • Of course, both companies, and many others, have now had to grapple with the often unbounded downside risk of just wiring together billions of people with few guardrails. Reading the Senate Intelligence Committee reports on Russian infiltration of social networks in the 2016 election, what emerges is unsettling: in so many ways the Russians had a more accurate understanding of the users of these services than the product teams running them. In either case, much of the cost has been born not by the companies themselves but society. Companies benefit from the limitless upside of their models, so it’s not unreasonable to expect them to bear the costs, just as we expect corporations to bear the cost of polluting rivers with their factories. If we did, as Hunter Walk has noted, profit margins would be lower, but society and discourse might be healthier.
    • Contrary to some popular Twitter counsel, the problem is not that the leaders of these companies don’t have humanities degrees. But the solution also doesn’t lie in ignoring that humans are wired to pursue social capital. In fact, overlooking this fundamental aspect of human nature arguably landed us here, at the end of this first age of social network goliaths, wondering where it all went haywire. If we think of these networks as marketplaces trading only in information, and not in status, then we’re only seeing part of the machine. The menacing phone call has been coming from inside the house all along. Ben Thompson refers to this naivete from tech executives as the pollyannish assumption.
    • Having worked on multiple products in my career, I’m sympathetic to the fact that no product survives engagement with humans intact, But this first era of Status as a Service businesses is closing, and pleading ignorance won’t work moving forward. To do so is to come off like Captain Louis Renault in Casablanca [“I’m shocked–SHOCKED–to find that gambling is going on in here!"].