Takeaways from “Status as a Service”
Takeaways from “Status as a Service”
Unfortunately, it’s also incredibly long. As I’m in the process of building a social product myself (Wavecut), I’ve distilled the original post in to what I feel are the essential points.
I’ve written the piece below with a focus on clarity, consumption, and maximization of immediately applicable takeaways for the reader. As such, I will provide little supporting evidence (you can find supporting evidence in the original post.)
- People are status-seeking monkeys.
- People seek out the most efficient path to maximizing social capital.
- Social capital is the quantitative expression of your status.
- You can start to quantify social capital if you think of it like financial capital.
- Young people are social capital poor, so they seek out social networks as the most efficient path to generation of social capital.
- Social networks shouldn’t rely on only social capital generation to be successful. They need to provide utility as well.
- The unique combination of a feature and a specific graph is a network’s most critical competitive advantage.
- You can stave off death by adding more utility, more mechanisms for POW tokens, or a combo of both.
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.
Pretext: How do you quantify the value created by Social Networks?
An easy way to understand Social Networks is thinking of them as SaaS businesses. But instead of providing software, they provide status. And instead of revenue being their main output, it’s social capital.
1. Measuring Social Capital is Hard — much harder than financial capital.
- While we may not be able to quantify social capital, as highly attuned social creatures, we can feel it.
2. We can much more easily measure financial capital.
- Since it’s more easily measured, it’s thought of as more “real.” Interestingly, social capital is a leading indicator of financial capital, and most social media networks generate much more social capital than actual financial capital.
3. Analyzing social capital dynamics can help to explain all sorts of online behavior that would otherwise seem irrational.
- I don’t need to post examples of people acting in weird ways online.
Context: What even is Social Capital?
While there’s no one agreed upon definition, I like: “A resource that actors derive from specific social structures and then use to pursue their interests, created by changes in the relationship among actors” (More definitions *here*)
1. Any easy way to spot social capital’s existence? Look at places where people trade it for financial capital.
- IG models make 7 figures; Jake Paul and other YT influencers buy lambos.
- $ also flows in the other direction. People buy Twitter followers — then convert that back into $ through charging for sponsored posts.
2. Similar to financial capital, there’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.
- The most obvious answer for storing and accumulating social capital: create a feed to give the “best” users distribution for their work.
- This is why Hipstamatic failed and IG succeeded; you would simply post Hipstamatic photos to Twitter and Facebook.
3. Social Capital has many other similarities to financial capital.
- Each social network provides a unique asset class. Most people manage their social capital assets across many networks as a sort of “diversified portfolio” of status.
- The Profile is the place where you show your individual “Status Metrics”, most notably follower count and list. Examples: Myspace “Top 5” friend list, Snapchat Best Friends badge.
4. Individuals can engage in social network “arbitrage”.
- “Joke aggregator” accounts have amassed millions of followers.
We talk about the miracles of machine learning in the modern age, but as social creatures, humans are no less remarkable in their ability to decipher and internalize what plays well to the peanut gallery.
Demographics: Why Social Capital Accumulation Skews Young
Young people will likely always be the first users of new Status as a Service businesses.
This is because they’re Social Capital “poor.”
Conversely, old people tend to be Social Capital “rich”.
Young people have much more time to master new products.
Older people’s brains make it more difficult to learn new skills and technologies.
Young people tend to juggle more identities. This gives them higher incentive to spread identities across various tworks.
Key Factors: Social networks have three ways to success - Utility, Entertainment, and Social Capital
1. Utility Axis: this is much more straight-forward, but the margins are also smaller.
- This is the world of communication services like messaging and video conferencing.
2. Social Capital Axis: this is incredibly difficult to replicate.
- This is perhaps because most investors are middle-aged white men who are already so high status they haven’t the any idea why people would seek virtual status in the first place.
3. To succeed on the Social Capital Axis, social networks must offer their own unique form of status token, earned through some distinctive proof of work.
Cryptocurrency ICO’s are a good analogy for new social networks.
- Each new social network issues a new form of social capital, a token. (A sample token is a Like)
- You must show “proof of work” (aka good content) 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.
4. On the Social Axis, if every piece of content in your service is great, none is great.
- The content is a built in further representation of status; people have tiers based on followers, and content has tiers based on # of likes.
5. Content to earn Proof of work can be usurped by macro forces (like fame).
- Kim K can show a picture of her elbow and get 10,000,000 Likes.
6. If your product allocates capital based on the author instead of the content, it can create a negative “winner-take-all” effect.
- TikTok is trying to battle this by having the main feed be completely algorithmic — people you follow is one swipe over.
7. Social networks should track the ROI on posts for new users!
- It’s likely a leading metric that governs retention or churn.
Differentiators: So, what makes a social network “unique”? How do you create a unique social network?
1. You can sometimes copy an existing “proof of work” and succeed.
- Usually when such displacement occurs, though, it does so along the dimension of pure utility.
- For example, messaging. Multiple messaging apps became viable companies just by capturing a particular geographic market through localized network effects. The best messaging app in most countries or continents is the one most other people are already using there.
2. But in the same market? Copying proof of work is a tough road.
- The first mover advantage is such that the leader with a) the dominant graph and b) the social capital of most value can copy new features and graft them into their more extensive and dominant incumbent graph.
3. For social networks, it’s the unique combination of a feature + a specific graph that is any network’s most critical competitive advantage.
- If you can apply the same 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 just about every social app with any traction anywhere. 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.
4. The Stories format is a genuine innovation on the social modesty problem of social networks.
- Stories, by putting the onus on the viewer to pull that content, allows everyone to publish away guilt-free, without regard for the craft that regular posts demand.
- Stories is inherently about lowering the publishing hurdle for users and about a new method of storytelling. Any multi-sided network seeing declining growth will try grafting it on their own network at some point — just to see if it solves supply-side social modesty.
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.
Sustainability: How do you prevent your social network from dying out?
1. Status games have caps on who can participate.
- This includes the number of people who have the skill and interest to compete, and limited user attention.
2. Status network effects can unwind rapidly if you have low utility.
- Utility is uncapped in value, but eventually networks lose their coolness. See Myspace.
3. You can combat this unwinding by adding new mechanisms or different value.
- IG with new stories filters, new video game “versions”, actual financial ROI (casinos), or community + connection (MMORPGs).
I hope this was useful! Again, I highly encourage you to read the full post (it’s absolutely worth it).
If you have any questions, drop me a line at [email protected]