Ask Colin: Network Effects

Hey Colin!

I hope this finds you well.

I am a follower of yours and also had the luck to listen at you, buy a couple of books, and hug you in London.

I’ve just finished listening to your episode about browsers, and it lit up a worry that I always had. I’m talking about instant messaging and privacy, but not only from a technical point of view.

I find myself investigating for example on Telegram and Signal, finding it very annoying that WhatsApp seems to lurk on what I discuss in private conversation. I am interested in understanding why people (installing otherwise tons of crappy apps on their phones) are so reluctant to understand and try alternatives. In life, in general.

We are talking about free apps anyway, but people just don’t even try, taking for granted that WhatsApp is THE option.

This way, like many other things in life, we are stuck in the loop of people not trying Signal, for example, with the excuse of not many people using it. But at the same time if no one uses it, how can we implement a change?

Michele

Hey Michele-

A fundamental component of this issue is an economic principle called the network effect.

The network effect, stated concisely, is the often intangible advantage a business, service, or social network can earn by getting a lot of people to use their platform or infrastructure.

If you’re the only person who owns a phone, that phone is relatively valueless. If you own a phone and so does everyone you know, that phone is a whole lot more valuable. And if half the people on the planet all own phones, each phone can be quite valuable, indeed.

The fundamental technology in question doesn’t need to change for those phones to become more valuable: what changes is the number of people on the phone network. The network effect, in this case, massively increases the value of each phone, and thus, the cost of leaving that network also increases—because you’ll potentially be leaving a jam-packed network for a comparably desolate one.

This effect isn’t inherently negative or positive. Arguably, it’s wonderful that we can make some of our possessions more valuable by increasing the number of people who own them, and thus, the number of people connected to each other and benefitting from each others’ presence.

It’s also understandable that people would want to stick with the networks that are hopping, while avoiding those that—although potentially better in some ways—are for whatever reason, decidedly not hopping. I myself would be hesitant to buy a phone that connected to a newer network that didn’t allow me to call phones that are on the older, more populated phone network.

At the same time, though, this kind of economic and technological entrenchment can lead to de facto monopolies, if we’re not careful. And this is essentially what we’re seeing in the world of social networks and communication apps.

Few people, in 2020, would claim that Facebook is the best social network by pretty much any metric except raw number of users.

I’m not a fan of Facebook, but for me and for many people I know, it’s become something like a phone book: a resource through which you can maintain connections with people you don’t see very often. It’s also sometimes the only reliable means of casually communicating with certain members of your family; for me, unless I want to call them, folks my parent’s age and older are only accessible via Facebook Messenger, but this demographic and the app they use varies from country to country.

In many places the US, WhatsApp is similar to Facebook within the US, in that it’s the default communication app and has therefore accumulated the largest installation base. As a result, it’s built network effect moat around itself to defend against arguably superior competitors.

This is why, even if you could convince your family and your best friends to switch to privacy-focused chat-app alternatives, chances are good that they—and perhaps even you—wouldn’t be able to use these apps for everything and would thus almost certainly find yourself grudgingly reinstalling WhatsApp because its the only service that allows you to do as much, reliably.

This functionality and near-universality is part of why they can get away with so much bad behavior.

This doesn’t mean that it’s impossible to make changes within our own lives, or to eventually catalyze a tidal wave of change that upends an incumbent, replacing it with something better. This has happened before, and it will almost certainly happen again, at some point.

iPhone and Android devices conquered the phone industry because they took advantage of newly affordable touchscreen hardware and mobile data technologies before the incumbents, which is arguably the only reason they were able to beat tech giants like Microsoft and Nokia at their own game. Sometimes a change to an external variable upends the existing paradigm, and the most dominant-seeming entities turn out to be not-so-dominant, after all.

It’s also possible that a new player enters this space and they simply outperform Facebook and their ilk, causing a large and influential crowd of users to flock to that new offering. This doesn’t mean they would necessarily leave the old network, but it could help create a smaller, gravitationally potent counterbalance to the existing dominant platform, which could at least diminish their network effect advantage, over time.

The financial norms of the tech world, unfortunately, often incentivize the creators of high-quality products and services to sell their offerings to larger, more established and well-moneyed players like Facebook and Google and Apple.

This is what happened to Instagram and WhatsApp when Facebook began to see them as emerging threats: Facebook offered to buy the threats, and because the founders of those companies were not ideologues, and because their companies were partially controlled by investors who wanted to earn a tidy profit on their investments, the offers were accepted—as they often are.

In the rare cases when they are not accepted, we sometimes see these larger players leveraging their bank accounts and their army of employees to copy the advantages their newer, smaller, more nimble competitors have created for themselves.

This was the case when Facebook, through the Instagram platform it acquired, copied the core functionality of Snapchat after Facebook unsuccessfully tried to buy it for $3 billion in 2013. Rebuffed, Facebook replicated Snapchat’s then-unique features as Instagram Stories, and Snapchat’s user-base and valuation subsequently collapsed, requiring years to regain some of the valuation they lost during that period.

The default option, by some standards the best option, will almost always be the most-popular app or network in a particular region, on a particular device.

This doesn’t mean we shouldn’t use the platforms we think are better. If we decide it’s pointless to even try, and that we should just give in to the incumbent because they’re the biggest, there would be little incentive for these giants of industry to ever change their ways, or for new entrants to arise.

I personally prioritize using Signal to communicate with my friends around the world, but I know I miss out on a lot because I no longer have Facebook or WhatsApp on my phone. I’m also on occasion forced to reinstall one or the other so that I can get in touch with the right person at the right time, or to accommodate someone else’s habits or priorities.

You can certainly make the argument that an extreme approach to such companies’ products is warranted, and that cold-shouldering them entirely is the only prudent approach to their behavior—especially since their list of abuses and oversteps is growing increasingly long each year.

On the other hand, it might be prudent to figure out how to optimize your experience within these apps so you can use them with as little negative consequence as possible when necessary, and so you can enjoy the many benefits of the current dominant network while also potentially communicating the benefits of alternative options to others, while you’re there.

We can afford to be more absolutist with such things when it’s just us and our habits we’re taking into consideration, but because of the networked nature of these apps and services, it’s probably best to maintain a flexible stance even as you do what you can to nudge norms toward safer and generally more ethical options.





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