Borsalino Test #7: Social networks & status-seeking games
Readers,
I collected some thoughts on social networks and the unfathomable value of social capital. Status-seeking games are as old as mankind, yet their dynamics remain obscure black magic for many.
As always, you can read my essays here. Alright, now onto the essay.
Michele
Social networks & status-seeking games
Status-seeking monkeys
People are status-seeking monkeys. They seek out the most efficient path to maximizing social capital. Yet, social networks rarely obsess over measuring status and social capital. This happens partly because of a measurement issue. Numbers lend an air of legitimacy and credibility. We created longstanding approaches to calibrate flows of financial capital - but there is no such method for appreciating the movement of social capital.
Social capital has much to do with why social networks lose heat, stall out, or disappear. While we may not be able to quantify social capital - as attuned social creatures - we can feel it. Social capital is, in many ways, a leading indicator of financial capital. Hence its nature bears greater scrutiny. Social capital can help to explain all sorts of seemingly irrational online behavior.
A word of caution as you dive into this piece. Think of this essay as a series of strongly held hypotheses. Without access to hard data, it’s not easy to be definitive about anything related to social capital.
“If I'm fake I ain't notice cause my followers ain't.” - Nicky Minaj
One of the fundamental lessons of social networks is they must appeal to people when they have few users. Two main lessons here:
First: the social network answer to the traditional chicken-and-egg question is actually easy. What comes first is a single chicken. Then another chicken, and then another chicken. Two main questions here. Why the first chicken came and stayed when no other chickens were around? Why the other chicken followed?
Second: social networks must have strong network effects. As more and more users come aboard, the network enters a positive flywheel of growth. A compounding value from positive network effects leads to hockey stick growth. "Come for the tool, stay for the network," wrote Chris Dixon.
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)".
What ties many of these explanations together is social capital theory. How we analyze social networks should depend on the social network's accumulation of social capital. How do such companies capitalize on the fact that people are status-seeking monkeys?
Utility vs. Social Capital
Classic network effects theory still holds, I’m not discarding it. Instead, let's append some social capital theory. Together, those form the two axes on which we should analyze social network health.
Utility doesn't need much explanation. Though we often use the term loosely and when many social networks aren't that useful. Facebook allows me to reach lots of people I would otherwise have a harder time tracking down. That is useful. WhatsApp allows me to communicate with people all over the world without paying. That is useful too. Strava enables users to track their own condition. Showcasing users progress to their network is useful.
The other axis is, for a lack of a more precise term, the social capital axis, or the status axis. Can I use the social network to accumulate social capital? What forms? How is it measured? And how do I earn that status?
Competition on raw utility tends to be Darwinian, ruthless, and highly legible. This is the world of Zoom and messaging platforms. Social network that compete on the social capital axis are often more obscure.
Blood, sweat and tears
"Why does anyone care what you ate for lunch?" is the canonical retort about any social network, though it’s fading with time. Skeptics go bananas when social network seem to manufacture value out of nothing. The shifting nature of scarcity will always leave a wake of skepticism and disbelief.
In the pre-Internet era, the most important attribute of movies was scarcity. There were only so many movies that would ever be made to fill only so many theater slots. In the case of TV, there were only 24 hours in a day. There was significant value in figuring out what was going to be a hit before it was ever created. That sort of selection and production is what Hollywood have been doing for decades.
Internet, and mobile specifically, is defined by abundance. The goal is not to pick out the hits, but rather to attract as much content as possible. Then algorithmically boost whatever turns out to be good. So where did scarcity end up? Perhaps you've read a long and thoughtful response by a random person on Quora. Or watched YouTube vloggers publishing night after night. Or heard about popular TikTokers stars living in houses together. It’s another example of proof of work, or at least vigorous hedge manufacturing. People mine for status on social networks largely through blood, sweat, and tears. This is proof of work, and it's definitionally scarce.
It's true that as more people join a network, more social capital is up for grabs in the aggregate. But if you come late to the party, you might miss the piñata. Unless you are Kanye and bring incredible exogenous social capital, the competition for attention is going to be more intense. Everyone has more of an understanding of how the game works so the competition is stiffer.
Is this thing on?
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?
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. It's not that a social network that makes it easy for lots of users to perform well can't be a useful one. It's competition for relative status that motivates humans.
Facebook launched with one of the most famous proof of work hurdles in the world: you had to be a student at Harvard. By requiring a harvard.edu email address, Facebook drafted off of one of the most elite filters in the world. It's hard to think of many more powerful slingshots of elitism. Facebook scaled while maintaining a narrow age dispersion and exclusivity based on credentials. It rolled out first to Ivy League schools, then to colleges in general.
Recall Twitter in the early days? 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. Get off my lawn, err, phone screen!
Then, Twitter earned its own proof of work. Over time the quality of tweets improved as that feedback loop spun and tightened. What gained the most likes were fed in increasing volume into people's timelines. Everyone learned from and competed with each other.
Read Twitter today and hardly any of the tweets are the mundane life updates of its awkward early years. We are now in late-stage performative Twitter. Nearly every tweet is hungry as hell for favorites and retweets. 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. And value. To succeed at the game, social networks offer their own unique form of status token. That can be earned through some distinctive proof of work.
So, to answer an earlier question about how a new social network takes hold, let’s add this. You must devise some proof of work. Bring some actual skill to differentiate among users. That creates some new form of social capital currency of value to those users.
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 kids from their teens through early 20's dominate the game. My cousin can post an Instagram story of his kneecap and would rack up a hundred likes. I could share a snapshot of myself in a conga line with Lil Wayne and Queen Rania of Jordan and pouring Hennessy over our heads and maybe get a DM. It's a kids' game.
We're all status-seeking monkeys. But young people tend to be the tip of the spear, and may always will be. Older people tend to have built up more stores of social capital. A job title, a spouse, children, often a house or some piece of real estate. Maybe a car, furniture that is not made in Sweden and doesn't require you to assemble it on your own. A resume. One or more college degrees, and so on.
Young people are generally social capital poor. They have no job title, they may not have finished college, they own few assets. If they've finished college they're saddled with substantial school debt. For them, the fastest social capital is to apply their trade on social media. Or video games, but that’s a topic for another day.
Adults tend to have more efficient means of accumulating even more status. That's because of their previously accumulated social capital. Maintenance of existing social capital stores is often a more efficient use of time. You can just earn interest on your sizeable status reserves. That's just math, especially once you factor in loss aversion.
Young people look at so many of the status games of older folks. The brand of car parked in your garage, the neighborhood can you afford to live in or how many levels below CEO are you in your org. Then they look at Instagram or TikTok, and choose the only real viable and thus optimal path before them. People maximize their social capital the most efficient way possible. Both the young and old pursue optimal strategies.
The fact that so much social capital comes in the form of followers, likes, and comments shouldn't lessen its value. Think back to your teen years and try to recall any real social capital that you could accumulate on such a scale. In your youth, approval of peers and tend to matter more than anything. Social media has extended the reach of the status game in every direction possible.
Social network arcs
It's useful to look at some of the common paths that social networks traverse over time. Not all them took the same paths to prominence. Doing so also helps illuminate the most productive growth strategies.
First utility, then social capital
This is the well-known “come for the tool, stay for the network” path. Instagram is a good example. In its early days, Clarendon and Juno filters provided utility to users. The last time I remember using an Instagram filter was 2014. Commerce is one additional area where Instagram can added more utility for its users.
Fist social capital, then utility
Come for the fame, stay for the tool?
IMDb, Wikipedia, Reddit, and Quora are more prominent examples here. Users come for the status, and help to build a tool for the commons. Heavier users may have thoughts on how successful these platforms have been.
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. They aren't status games with likes and follows. Zoom, FaceTime, Google Hangouts fit this category as well. Some messaging apps are trying to add features like Stories. I’m skeptical they’ll ever see traction doing so.
This space is home to some businesses with over a billion users. Minimizing social capital and competing on utility tends to be brutally competitive. Here 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. 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. Many people I know have just dropped Facebook from their lives. I did that as well a couple of months ago. Very little utility has dropped in my life since then. I'd go as far as to argue that Facebook is not a top tier player in any utility category. Its value is almost entirely accrued through social capital games.
Both social capital and utility
The holy grail for social networks is to generate so much social capital and utility. Most social networks will offer some mix of both, but none more so than WeChat.
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. To delete it would be a massive inconvenience for most citizens. Take payments for example. The Chinese largely skipped credit cards, for a whole host of reasons. In part it was due to a cultural aversion to debt. In part because Visa, Mastercard, and American Express weren’t allowed into China. When Alipay and WePay launched, they competed only with cash.
Don’t tie your happiness to someone else’s scoreboard
Many of the largest tech companies are, in part, status-seeking games. This is not often (or enough) discussed. Most people don't like to admit being motivated by status. Few CEO's are going to admit that the job to be done for their company is stroking people’s egos.
People are starting to talk more about the soul-withering effects of playing an always-on status game. 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 thinkpieces counseling stoicism or transcendental meditation. 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.