Eugene WEI has been writing on tech since 2001. I’m not going to sell you his CV that goes from Facebook to Hulu and Flipboard. Let it just be said that he knows what he’s talking about. And his latest article he’s writing on Status as a Service and this is one of the most remarkable reading I had on the digital social media and consumerism.
He starts of by dissecting how traditional network effects are twisted in social networks through three axis (social capital, entertainment and utility):
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, perhaps because most investors are middle-aged white men who are already so high status they haven’t the first idea why people would seek virtual status (more on that later).
In this discussion, he’s making a striking analogy between social networks’ alchemy and cryptocurrencies:
As with cryptocurrency, if it were so easy, it wouldn’t be worth anything. 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.
One of the key thing is that in a social network when participants acquire status they also have to show that they earned it to some extent by this proof of work. Said differently, if the social game is just a lottery no one has an incentive to participate.
And there also must be a social capital ROI that build up a feedback loop:
If a person posts something interesting to a platform, how quickly do they gain likes and comments and reactions and followers?
I believe that in 2003, Cory Doctorow’s Down and Out in the Magic Kingdom was the first to introduce the notion of social currency, where the amount of “whuffies” you’d earned by being nice and helpful to others will allow you to have access to better food, a better apartment and eventually luxury services.
Eugene is also making the point, that consumers looking for Status as a Service cannot accept copycat social networks. Just like we don’t accept copycat currencies. Even in China, where it’s very acceptable to clone a successful product and try to steal away consumers from the original brand (think Xiaomi and Apple), this doesn’t work with social media where the social currency need to be centralized to have value. In that regard, thinking that you’ll replace Facebook by inventing a fresher version of Facebook as a 2020 version of Zuckerberg more in touch with privacy and trust issues, is a blunt mistake.
Another interesting insight is that when the social feedback loop is up and running, users graduates from newbies to super-users fast and messages get hyper-specialized and tight to the point of being cryptic for outsiders:
Any Twitter account that continues to gain followers converges on that of a a fortune cookie, but I underestimated how quickly everyone would arrive at that end state.
The Status as a Service mechanism is also driven by a need to overcome the signal to noise ratio in growing networks. The risk is that with too many participants in the social game, the quality of the games will degrade in return. To some extent, I believe that the surprise success of Fortnite — the fastest growing social network for teenagers in the western hemisphere with +200 million players — is explained by this. Players only socialize by group of 100 on a game map and there is tremendous value in this intimate, casual hangout intimacy.
Both demographically and socially it does make sense that gaining social capital is much (much) more important for the young generation. It’s not because they are ‘digital natives’ or more social monkeys than us:
Young people are generally social capital poor unless they’ve lucked into a fat inheritance. They have no job title, they may not have finished college, they own few assets like homes and cars, and often if they’ve finished college they’re saddled with substantial school debt. For them, the fastest and most efficient path to gaining social capital, while they wait to level up enough to win at more grown-up games like office politics, is to ply their trade on social media (…)
OK, I will probably stop there. I don’t intend to fully resume the full article. Just to give you key incentives to read it. I see too many startupers deeply invested in this market with no clue about its inner mechanisms. Don’t be like that. But truth to be told, understanding this alchemy of Status as Service (as much as one can make sense of it!) is not only for “them” the supposedly young generation of startupers. It is also and foremost for us: managers, leaders, investors, scientists, journalists, politicians and shareholders:
Some people find status games distasteful. Despite this, everyone I know is engaged in multiple status games. Some people sneer at people hashtag spamming on Instagram, but then retweet praise on Twitter. Others roll their eyes at photo albums of expensive meals on Facebook but then submit research papers to prestigious journals in the hopes of being published. Parents show off photos of their children performances at recitals, people preen in the mirror while assessing their outfits, employees flex on their peers in meetings, entrepreneurs complain about 30 under 30 lists while wishing to be on them, reporters check the Techmeme leaderboards; life is nothing if not a nested series of status contests.