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1) @eugenewei post on understanding social networks as "Status as a Service" businesses is by far the best thing I have read so far in 2019. So many insights and new mental models for investing in $FB, $SNAP, $TCEHY and $TWTR.
2) Conceptualizing social networks as ICOs with unique “proof of work” helps explain why so many of $FB’s attempts to copy features from other social networks failed yet Stories succeeded.
3) “it’s the unique combination of a feature and a specific graph that is any network’s most critical competitive advantage.” Specific features (proof of work) are social graph dependent in terms of their success.
4) Features being the proof of work required to earn social capital. And many of $FB’s attempts at copying features failing because they had a different graph (everyone u know) vs. other social networks.
5) Stories for $FB succeeded because they solve a universal issue for all social graphs: “supply side social modesty.” Other features $FB tried to copy were more graph dependent, hence the failures.
6) “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.” (MySpace)
7) His most powerful point for investors is that utility is the ultimate moat for any social network given that social networks can unravel quickly. The inverse of @cdixon excellent post “come for the tool, stay for the network.”
8) Riffing on this, I’d say “come for the tool, stay for the network, never leave because of the utility.” Build defensibility by making your network useful. WeChat succeeded at this – partially due to an easier road - and $FB has failed to do this so far
9) It is easy in the United States to eliminate $FB from your life and impossible to eliminate WeChat from your life in China.
10) He correctly posits that $FB would be in a much better position today if it had persisted in trying to compete in search ($GOOGL’s main fear re $FB), developed a payments system or developed an assistant (likely required success in search). All would have increased utility.
11) Instead he sees $FB as having abandoned all of these efforts prematurely. Nothing could compete with advertising as a business opportunity but that is/was ultimately dependent on engagement, which is now a point of vulnerability for $FB.
12) I will never forget Sheryl Sandberg’s response upon being asked about low hanging fruit (from a monetization perspective) at $FB in 2014ish: “We haven’t even gotten to the low hanging fruit. We are still stepping on fruit.”
13) $FB’s engineering efforts were focused upon a) monetization and b) sustaining engagement by rapidly copying features (proof of work) from other social networks. Nothing had a higher ROI in the short term than a) and b) seemed eminently logical.
14) Being a fast follower on features was rational – see $MSFT in 90s. Yet lots of efforts to drive engagement via added features failed with the exception of stories for the reasons described above. Social networks are not operating systems. Feature success is graph dependent
15) Also explains why $FB’s efforts to unbundle their app failed ex Messenger. Many of the features they were unbundling were graph dependent and $FB was using the same graph, thinking that was their advantage instead of realizing it was also their disadvantage at times.
16) I wonder how many of $FB’s failed features would’ve succeeded if they had let users change the associated graph. Or done given users the option of having it done for them algorithmically.
17) The intense focus maintaining engagement by copying features doomed to failure because their success was graph dependent led to the failure to develop any real utility – search, payments - which left $FB, especially big blue, vulnerable.
18) The fact that utility is the ultimate moat is why users consistently say they would remove all $FB apps before $GOOGL apps in surveys despite valuing $FB at $1000-$2000 in other surveys. It is semi-impossible to function today in America without $GOOGL but easy without $FB.
19) $FB seems to realize all of this now. Hence the deployment of several top tier executives to their cryptocurrency project, which could be a big unlock for payments and the utility of all their networks and thereby increase the sustainability of their engagement.
20) Identifies enforced graph portability as the critical regulatory vulnerability for $FB (I would add being broken up). The graph does have immense value as long as it is extant. It just has to be correctly applied.
21) I have to carefully think through what all of this means for $TWTR and $SNAP. And so much more to explore re: the future of $FB. So many implications.
