Thread by @RDesai01

Doing a notes tweetstorm on @eugenewei's Status as a Service: eugenewei.com/blog/2019/2/19…

Hopefully this will be good motivation for me to sit with it and really read.

@eugenewei Two beginning premises:

1) People are status-seeking monkeys.

2) People seek out the most efficient path to maximizing social capital.

Wei begins with these because few would dispute them but they're also rarely used to analyze social networks.

This is partly bc we lack ways to measure the values & movement of social capital with the same accuracy and precision we do financial capital.

But "social capital is, in many ways, a leading indicator of financial capital, and so its nature bears greater scrutiny."

Successful networks teach us 2 fundamental lessons:

1) Such networks must overcome the "cold start" problem & attract users when they have few users.

2) Such networks must generate network effects & achieve flywheel growth.

"Come for the tool, stay for the network." -@cdixon

@cdixon These two account for the growth of social networks (SNs) that succeed.

But why do SNs fail? Questions of this ilk can be answered by social capital theory.

SN analysis should study their accumulation of social capital assets & the nature & structure of its status games.

Wei uses these 2 axes to dissect social networks.

Utility will loosely mean "usefulness" and social capital will refer to "status" (its forms, its accumulation, how to measure it, and how to earn it).

"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,"

"When modeling how successful social networks create a status game worth playing, a useful metaphor is one of the trendiest technologies: cryptocurrency."

Almost every social network of note had an early signature proof of work hurdle:

FB: posting some witty text-based status update.
Insta: posting an interesting square photo.
Vine: posting an entertaining 6-sec video.
Twitter: writing an amusing bit of text in ≤ 140 chars.

ASIDE: some folks have exogenous pre-existing social capital in the form of generalized fame (e.g. Trump, Kanye).

This transfers readily across most arenas in which status games are played.

This is less true for specialized fame; few people follow renowned economists on Insta.

As folks join a SN, there's more social capital (SC) up for grabs in absolute terms.

But, unless you're famous as described above, competition for that SC is more intense than in earlier stages of that SN's status game.

This is because everyone knows how the game works.

Why does proof of work matter for an SN?

If it were easy to gain, it wouldn't be worth anything. Value derives from scarcity which, on SNs, derives from work.

"Status is a relative ladder... If everyone can achieve it, it’s no status at all, it’s a participation trophy."

Early Twitter was mostly boring life status updates.

After Favstar & Favrd (both now defunct) began ranking tweets on a global leaderboard, Twitter turned into a competition to compose popular tweets by being funny & clever.

Today, everyone on Twitter is thirsty for attention.

"Thirst for status is potential energy.

It is the lifeblood of a Status as a Service business.

To succeed at carving out unique space in the market, social networks offer their own unique form of status token, earned through some distinctive proof of work."

Prisma, a photo filter app, tried to pivot to become an SN.

But their filters could make any pic look gorgeous, so the relative photography skill of users didn't matter.

It didn't make sense to follow one person over another bc the star was the filter, not the person.

Let's add another principle of successful SNs:

"A new Status as a Service biz must devise some proof of work (PoW) that depends on some actual skill to differentiate among users.

If it does, then it creates, like an ICO, some new form of SC currency of value to those users."

Moving on to Social Capital ROI.

We said "people seek out the most efficient path to maximize their social capital."

This implies they have a sense for how different strategies vary in effectiveness. Young people especially.

Different SNs reward varying forms of content differently.

"The gradient of your network's SC ROI can often govern your market share among different demographics.

Young girls flocked to Musically bc they were uniquely good at lipsync dance routine vids that it rewarded."

"Graph-based SC allocation mechanisms can suffer from runaway winner-take-all effects.

Some SNs reward those who gain a lot of followers early on with so much added exposure that they continue to gain more followers than other users, regardless of whether they've earned it."

"One hypothesis on why SNs tend to lose heat at scale is that this type of 'old money' can't be cleared out, & new money loses the incentive to play the game.

SNs should distribute the best content, w/e the definition of quality, regardless of the vintage of user producing it."

"Otherwise a form of social capital inequality sets in, and in the virtual world, where exit costs are much lower than in the real world, new users can easily leave for a new network where their work is more properly rewarded and where status mobility is higher."

Why do clones of SNs generally fail?

Duplicating the basic PoW of an incumbent Status as a Service duplicates the existing status game. Hence, there's no new status ladder and no incentive to move to a new SN with no one on it.

There are some games in which you can copy a PoW and win, often by building a better game or more valuable form a status (FB only accepting Harvard & Ivy kids at first).

But normally, these are pure utility plays (e.g. different local messaging apps around the world).

Beware that path.

First mover advantage enables the market leader with a dominant graph and high value SC to "reverse copy", grafting the new competitor's features into their own.

The greatest social capital boom in history was the launch of FB's News Feed.

Before that, users had to actively click through to other users' profiles to find activity on the network.

News Feed is an infinite stage where humans who previously competed for status in small are now competing against everyone.

It "increased the efficiency of distribution & pitted all posts against each other in 1 giant attention arena, complete w/ live scoreboards on each post."

"By taking the scope of our status competitions virtual, we scaled them up in a way that we weren't entirely prepared for. Is it any surprise that seeing other people signaling so hard about how wonderful their lives are decreases our happiness?"

While we're all status-seeking monkeys, young people tend to be the tip of the spear when it comes to catapulting new Status as a Service (StaaS) businesses, and may always will be.

A brief aside here on why this tends to hold.

Older people tend to have built up more stores of social capital: a job title, a spouse, maybe kids, real estate.

Young people are generally SC poor unless they've lucked into a fat inheritance. The fastest path to gaining SC is to ply their trade on social media.

Adults can more efficiently earn interest on their existing offline SC.

It's inefficient for young people to play the adults' game.

Both sides pursue optimal strategies for them.

Older people don't have the time to master new forms of social capital; on the other hand, young people have nothing but time.

Finally, younger people juggle more identities (work, school, friends, family, etc).

They need to keep these separate or risk context collapse (e.g. sending something meant for friends to boss or teacher).

Hence, expiration of content is key (Insta, Snap). FB is a bad fit.

Back to the topic at hand. We'll now look at some common social network arcs (i.e. how SNs traverse the 2 axes laid out earlier).

Come for the tool, stay for the network.

Ex. Instagram started as a filter-driven utility and moved to social photo sharing. Now, they're moving back to utility with the addition of commerce.

Come for the fame, stay for the tool.

Foursquare got started by people winning mayorships, then became a utility of place info.

IMDb, Wikipedia, Reddit, and Quora users come for status and help build a tool for the commons.

Pure utilities.

Some apps create utility for a network but never succeed at building SC (e.g. Zoom, Skype, Viber).

This is a "brutally competitive battleground where even the slimmest moat is fought for with blood & sweat, especially bc useful features are trivial to copy."

A SN that loses heat before it generates utility.

This is probably something like Ello or Peach (this is my conjecture, not Wei's).

The holy grail is to be on the top right: high utility, high SC.

No one does this better than WeChat.

Wei can't think of anyone in China who's gone cold turkey on WeChat; that's how embedded it is as a daily utility.

What causes StaaS businesses to stop growing?

The chosen PoW mechanism is itself an asymptote on growth.

The # of people who wish to engage in a given PoW (crafting 280-char info nuggets, lipsyncing to songs, etc) is finite.

Active users is a ceiling on growth.

Worse than an asymptote is collapse. Why do some SNs contract and wither away?

"To understand the inherent fragility in Status as a Service businesses, we need to understand the volatility of status."

There's a winner's curse for SNs. If an SN achieves enough success, it must impose an algorithmic feed to maintain high signal-to-noise for most users.

But this, of course, diminishes the distribution of any 1 post from any 1 user.

Consider how news outlets flocked to FB to get access to deterministic, guaranteed views on their content.

One day, FB decided to limit the reach of Pages; this was controversial, but necessary to prevent a tragedy of the commons re: users' attention.

Another existential risk somewhat unique to SNs is: network effects (NEs) are powerful, but those that are social in nature are just as ferocious in reverse.

NEs can unwind just as fast as they're generated. If the network cracks, the business unravels.

Why do NEs reverse?

"Status relies on coordinated consensus to define the scarcity that determines its value. Consensus can shift in an instant."

As Groucho Marx said: "I don't care to belong to any club that will have me as a member."

This doesn't happen immediately.

A status hierarchy needs underlings so that high-status people have a sense of how high up they are.

A leaderboard with a single high score is pointless.

But there's a tipping point past which SNs lose their "cool" factor.

Often, the most high status folks jump ship first for cooler pastures, causing their followers to go with them.

This is the "evaporative cooling" of SNs.

The only way to prevent a nosebleed of churn is to ensure the product delivers as much utility as possible.

Fashion understands this intimately.

Magazine editors & fashion designers declare arbitrary new styles seasonally (with 0 utility change), retiring old stuff before it grows stale.

"The industry is pulling the frontier of scarcity forward like a wave we're all trying to surf."

A variant of this status devaluation cascade is when a certain group joins an SN.

"This is because the stability of a status lattice depends just as much on the composition of the network as its total size."

The canonical example is youth migrating off FB when parents got on.

Many flocked to Snapchat bc its ephemerality offered built-in security & its UX opacity gated against clueless seniors.

Beyond Snapchat's UI being a "tamper-proof lid" for parents, it puts the camera first, where older folks are text-first. This adds work for old people.

On Snapchat:

CEO Evan Spiegel said in a strategy memo that Snap needs to refocus on being the fastest way to communicate.

This will move them more towards utility, stabler ground on which to build a biz.

But the idea that kids use Snap as a pure messaging utility is laughable.

When you see a party you're not invited to on Snap, you still feel terrible.

In the early days, Snapchat had a Best Friends list that quantified the hierarchy of everyone's friendships.

That was a zero-sum game.

It's since been replaced with SnapStreaks, turning the hierarchy of friendship into a positive sum game.

These are unbounded and you can maintain as many as you like.

"If you don't think social capital has value, you've never seen, as I have, a young person sobbing over having to go on vacation without their phone, or to somewhere without cell or wifi access, only to see all their streaks broken."

"Of course, as evidence of the fragility of social capital structures, streaks have started to lose heat. Many younger users of Snapchat no longer bother with them."

On Lengthening the Half-life of Status Games:

If the PoW burden doesn't change, the store of social currency will eventually be depleted.

Then, the status-driven potential energy of the SN flattens. The SN can go stale if it doesn't have sufficient utility.

One way to combat this is to add new PoW mechanisms.

Consider how Insta began with square photos + filters.

It's since removed the aspect ration constraint, added video, and new formats like Boomerang and Stories.

These new PoW mechanisms are like DLC in video games: new levels / content to spice up a familiar game.

Why are senior execs at most companies, even social networks, ill-suited to designing and leveraging social features?

It’s a variant of winner's curse. The easiest way to empathize with users is to be the canonical user yourself.

But...

With SNs, one of the problems with seeing through your users’ eyes is that everyone has a different experience given who they follow & what the algorithm feeds them.

"Til we have metrics that distinguish healthy & unhealthy activity, SN execs largely have to steer by anecdote."

"Some may find it hard to believe when execs plead ignorance when alerted of the scope of problems on their SNs, but I don't.

When it comes to SNs, the thickest veil of ignorance is the metrics dashboard that munges 100s, 1000s, or even millions of cohorts into just a handful."

"But perhaps even more confounding is that execs at successful SNs are some of the highest status people in the world. Forget 1st world problems, they have .1% or .001% problems.

They are hardly in need of more status, except of a type they won't find on their own networks."

On exchanging social and financial capital:

"That some of the largest, most valuable companies in history have been built so quickly in part on creating status games should be enough to convince you of the existence and value of social capital."

"Perhaps the easiest way to spot social capital is to look at places where people trade it for financial capital.

Perhaps the most oft-cited example of a social-to-financial-capital exchange is the type pulled off by influencers on Instagram and YouTube."

"I've met models who, in another life, might working the front door at some high end restaurant in Los Angeles, but instead now pull down over $1M a year for posting pics of themselves luxuriating in specific resorts, wearing & using products from specific sponsors."

"Similarly, we see flows the other direction. People buying hundreds of thousands of followers on Twitter is one of the cleanest examples of trading financial capital for social capital."

An aside on monetization:

"Agencies have sprung up in China to develop & manage influencers, almost like farm systems in baseball. The speed at which SC can be converted into your own branded product lines is accelerating by leaps and bounds, and nowhere more so than in China."

On SC accumulation & storage:

"For the individual user, we've standardized on a few basic social capital accumulation mechanisms. There is the profile, to which your metrics attach, most notably your follower count and list."

"Followers or friends are the atomic unit of many social networks, and the advantage of followers as a measure is it generally tends to only grow over time. It also makes for an easy global ranking metric."

"Local scoring of SC at the atomic level usually exists in the form of likes, one of the universal primitives of every SN.

Likes correlate with your activity volume & serve as a source of short-term SC injections, even if each like is less valuable than a follower or a friend."

There are some SNs where accumulating SC is difficult: think anonymous networks like Whisper or Secret.

Users couldn't claim any of the SC created there.

The toxicity of things posted to those networks would actually provide negative SC if claimed.

"For any single user, the stickiness of a SN often correlates strongly with the volume of social capital they've amassed on that network.

People sometimes will wholesale abandon social networks, but it's rare unless the status earned there has undergone severe deflation."

On SC Arbitrage:

"Because social networks often attract different audiences, and because the configuration of graphs even when there are overlapping users often differ, opportunities exist to arbitrage social capital across apps."

"A prominent user of this tactic was thefatjewish, the popular Intsta account (real name: Josh Ostrovsky). He accumulated millions of followers in large part by taking other people's jokes from Twitter and other social networks and then posting them as his own on Instagram."

"At some level, a huge swath of social media posts are just attempts to build status off of someone else's work. The two tenets at the start of this article predict that this type of arbitrage will always be with us."

SC games are a temporary energy source.

In our world of infinite content, offering rewards for surfacing interesting things is incredibly reliable as an incentive.

Reddit is the archetypal example of this with their karma currency.

Even "non-social" companies use these dynamics:

Yelp threw parties to reward Yelp Elite for reviewing things.

Amazon's Top Reviewer List and Global Sales Rank turned reviewing products and driving sales into competitions.

Conclusion:

Status permeates everything.

"From a user perspective, people are starting to talk more and more about the soul-withering effects of playing an always-on status game through the social apps on their always connected phones."

Advice from Eugene: "If you want control of your own happiness, don’t tie it to someone else’s scoreboard."

But it's not all bad: things are "built by people who feel, in part, a jolt of dopamine from the recognition that comes from contributing to the world at large."

"At Amazon, someone coined a term for this type of motivational currency: egoboo (short for, you guessed it, egoboost).

Something like Wikipedia, built in large part on egoboo, is a damned miracle.

I don’t want to lose that. I don’t think we have to lose that."

"Of course, status is equally potent as fuel for the darkest, cruelest parts of human nature.

There's unbounded downside risk to just wiring together billions of people with few guardrails."

"Overlooking the fundamental status-seeking aspect of human nature arguably landed us here, at the end of this 1st age of SN goliaths, wondering where it all went haywire. If we think of SNs as markets trading only in info, & not in status, we're only seeing part of the machine."

"This first era of Status as a Service businesses is closing, and pleading ignorance won’t work moving forward."

Fin.

Credit for good stuff belongs 100% to @eugenewei

Hope I played the status game right 😈