1/
Most people do not understand the real business model of social media. But once you get it, everything starts to change.
This includes:
- why they are addicting by design
- why its hard to opt out from them
- why they all inevitably converge to the same monetization model
Most people do not understand the real business model of social media. But once you get it, everything starts to change.
This includes:
- why they are addicting by design
- why its hard to opt out from them
- why they all inevitably converge to the same monetization model
2/
Social Media as an Attention HFT
HFT refers to high frequency trading. HFT profits off being the "market maker", by investing a lot in CapEx and borrowing a lot of money to provide liquidity.
They don't bet on market direction. Rather, they take any orders that come to them and clearing them for a fee.
The difference between the bid-ask is known as "spread" and that is their margin.
Basically, HFT gets paid for the benefit of adding liquidity to markets.
Social Media as an Attention HFT
HFT refers to high frequency trading. HFT profits off being the "market maker", by investing a lot in CapEx and borrowing a lot of money to provide liquidity.
They don't bet on market direction. Rather, they take any orders that come to them and clearing them for a fee.
The difference between the bid-ask is known as "spread" and that is their margin.
Basically, HFT gets paid for the benefit of adding liquidity to markets.
3/
Why is this relevant to Social Media?
Imagine social media as an equivalent "market maker" for attention.
First, they accumulate the entire world's attention and activity in their ecosystem so they have infinity attention to sell to people who need it.
Sounds familiar?
Its the exact playbook HFT has for borrowing a large amount of capital used to buy and sell stocks at high volume.
Why is this relevant to Social Media?
Imagine social media as an equivalent "market maker" for attention.
First, they accumulate the entire world's attention and activity in their ecosystem so they have infinity attention to sell to people who need it.
Sounds familiar?
Its the exact playbook HFT has for borrowing a large amount of capital used to buy and sell stocks at high volume.
4/
Unlike HFT, social media needs a different way of accumulating "inventories" that will be traded between different parties.
They need people to keep using the platform to supply them the "currency of attention".
So they have to reward and bid for content creators that help fuel their "infinite jest machine".
Pay enough interesting creators, and you will gather all of the audience in one place.
As soon as you hit enough users, FOMO kicks in and everyone must join the network to not get left behind, includes creators and audiences.
Unlike HFT, social media needs a different way of accumulating "inventories" that will be traded between different parties.
They need people to keep using the platform to supply them the "currency of attention".
So they have to reward and bid for content creators that help fuel their "infinite jest machine".
Pay enough interesting creators, and you will gather all of the audience in one place.
As soon as you hit enough users, FOMO kicks in and everyone must join the network to not get left behind, includes creators and audiences.
5/
Selling attention becomes the easy part.
When you accumulated enough attention and audiences, the people who want to bid for it are advertisers.
Social Media sells by keywords, demographics, and geographics. Effectively, they slice and cut the attention pile and make it worth more than what it cost to accumulate them in place.
It's the same business model as buying a commodity wholesale, bundle them in small packages, and sell back to customized consumers at convenience.
Selling attention becomes the easy part.
When you accumulated enough attention and audiences, the people who want to bid for it are advertisers.
Social Media sells by keywords, demographics, and geographics. Effectively, they slice and cut the attention pile and make it worth more than what it cost to accumulate them in place.
It's the same business model as buying a commodity wholesale, bundle them in small packages, and sell back to customized consumers at convenience.
6/
This is a genius business model and I argue its a net positive for markets, despite how many people think its evil.
- cost of information discovery gets lower
- cost of advertising to the right people gets lower
- feedback times decreases
We take for granted the benefit we get from SocMed and HFT, and complained too much about the profits they make.
This is a genius business model and I argue its a net positive for markets, despite how many people think its evil.
- cost of information discovery gets lower
- cost of advertising to the right people gets lower
- feedback times decreases
We take for granted the benefit we get from SocMed and HFT, and complained too much about the profits they make.
7/
However. once you understand this business model, it also means there is an incentive for SocMed to be as addicting as possible.
They need a constant and predictable stream of attention supply so they can sell back to advertisers, so they built an "nfinite-jest-machine".
It also means any social media that doesnt run the advertising business model is leaving a lot of money on the table -- subscriptions and barriers to entry kills the predictable stream of attention supply.
Hence, subscriptions are only reserved for niche media. It also means there is less incentive for subscription media to be making infinite content (you can decide if its a good or bad thing).
However. once you understand this business model, it also means there is an incentive for SocMed to be as addicting as possible.
They need a constant and predictable stream of attention supply so they can sell back to advertisers, so they built an "nfinite-jest-machine".
It also means any social media that doesnt run the advertising business model is leaving a lot of money on the table -- subscriptions and barriers to entry kills the predictable stream of attention supply.
Hence, subscriptions are only reserved for niche media. It also means there is less incentive for subscription media to be making infinite content (you can decide if its a good or bad thing).
8/
If you like this breakdown, you should like and repost the first thread.
Small account here, so any distribution effort helps me out.
While I spend most of my work as an artist/programmer now, I have a quant background and I personally love unusual perspective on business models and arbitrage opportunities.
I plan to share more unusual things I see that has "alpha" at accumulating unusual "currencies" (attention, reputation, time, etc).
If you like this breakdown, you should like and repost the first thread.
Small account here, so any distribution effort helps me out.
While I spend most of my work as an artist/programmer now, I have a quant background and I personally love unusual perspective on business models and arbitrage opportunities.
I plan to share more unusual things I see that has "alpha" at accumulating unusual "currencies" (attention, reputation, time, etc).
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