Thread by @eugenewei

Many companies stall out at offering just utility. A lot of messaging and communication apps fall into this category. They can be massive companies, but competing on raw utility is a Hobbesian jungle.

The dream scenario for a social network is to transition from offering social capital to offering a ton of utility as well. Utility is less volatile than status. It's almost impossible to over-serve on utility.

Facebook would like to offer more utility to retain its users, following in the path of the gold standard here in WeChat, which is so integral to the daily lives of the Chinese that few could contemplate quitting the app the way some people quit Facebook.

Why can't networks rely on social capital to grow forever? One reason is that a narrow Proof of Work by definition excludes those who don't excel at it. This doesn't mean non-creators can't enjoy, say, TikTok, but it's still a cap on total addressable market.

Status is also inherently fragile, subject to both massive inflation and devaluation. Understanding why is key to understanding why, despite Metcalfe's Law, large social networks like MySpace just crashed hard.

Almost any social network that achieves scale has to launch an algorithmic feed to prevent a tragedy of the commons when it comes to directing its users' attention. These interest rate hikes are key to fighting content inflation.

Worse, social capital driven network effects can burst like a bubble. As @pmarca noted, "The problem with network effects is they unwind just as fast. And so they’re great while they last, but when they reverse, they reverse viciously."

Why can status-driven network effects unravel? Groucho Marx understood this long ago. "I don't care to belong to any club that will have me as a member."

The value of status tends to be determined by just a subset of users rather than the entire population. The cool kids can pack a club, but they can empty it just as quickly by heading for the exits.

The fashion industry understands the inherent fragility of cool and has gotten ahead of the cycle by taking ownership of the devaluation cycle. It constantly creates new trends to replace the previous season's trends.

Another problem with status-driven network effects is the issue of mix. Some segments of customers just don't mix well, like kids and their parents on Facebook. So just growing at all costs can be a form of network effects trap.

Snapchat is trying to mitigate the risk of a status devaluation event by focusing on utility. In that leaked memo last year, Evan Spiegel wrote, "The most durable way for us to grow is by relentlessly focusing on being the fastest way to communicate."

Of course, even though Snapchat never had likes, it's still had a variety of status features along the way. Best Friends, Streaks, and Friend Emojis are all scoreboards for relationships.

One way to prolong the length of a status game is to add new Proofs of Work. Facebook went from text updates to photos to videos. Instagram went from square photos to multiple aspect ratios to videos and so on.

Some companies just don't have social in their DNA—Apple, Google, Amazon, Microsoft—in part it's b/c status games are inherently distasteful to many people but also b/c you can't just graft social on as an afterthought.

Many execs, even at successful social networks, have a hard time comprehending what is happening on their services because the execs themselves are so high status that their experience of the app is totally different from that of the average user.

Social capital is hard to measure, but we can detect it when it's traded for something we can measure, like money. Influencers on YouTube and Instagram make that exchange all the time.

For a StaaS to succeed as a stand alone business, it must own the primary marketplace in which the social capital is generated, usually some sort of feed. Hipstamatic did not, Instagram and Musical.ly did.

A StaaS must also provide its users a mechanism to enjoy the social capital they've earned. This is why anonymous networks like Whisper and Secret are difficult businesses; users claiming ownership of those posts would be destructive to their overall status in society.

As long as content is unevenly distributed across networks, we'll have social capital arbitragers. Meme aggregators like fatjewish and fuckjerry earn followers and likes on Instagram by taking other people's jokes from Twitter and reposting them there.

Status games can be used as a means to an end. IMDb, Wikipedia, Reddit, Quora built off virtual status. Amazon Top Reviewers and Yelp Elite are other examples of mechanisms that serve a larger purpose, to increase review density.

Celebrity apps usually fail because they create no social capital for their users. They are simply alternate channels of distribution for the celebrity in question.

We're at the end of the first era of social networks. They've been fun and useful and toxic all at once. To fix the problems from this first era will require modeling users as status-seeking monkeys from the start. We've met the enemy, and it is us. /FIN

Thanks to @samhinkie for coining "status-seeking monkeys" and spurring my thinking on old money, @kevinakwok for many conversations on social capital, and @naval for suggestions on the piece and encouraging this summary