The Gauntlet Faced by Upstart Social Networks Just Got Harder
A common set of trials faced all ambitious social networks… Until this month.
As Facebook faces a crisis in confidence — having lost the trust of a wide swath of users, advertisers, investors, employees, and (most worryingly) regulators — pundits have attempted to make sense of the matter by holding the company up to historical precedents. Comparisons to AOL have always been popular (here’s Kottke pairing the two over a decade ago) but now we’re seeing Yahoo! in the mix, which is never a good sign.
Considering Facebook’s challenges against the ghosts of social networks past, I couldn’t help but attempt to define a framework regarding the challenges of building a social network. Is there a consistent set of challenges these networks face on their way to either global adoption or failure? While considering the trajectories of current and past social networks, a gauntlet of sorts emerged:
Ambitious social networks meet each of these successive challenges. With much effort they either overcome each subsequent challenge, stall, or entirely fail out.
Let’s use this framework to think through Facebook’s current situation.
How has Facebook manged to make it to Challenge 9, ‘Survive Regulation’, when all others have failed? And what challenges is it facing today?
- Facebook grew quickly through smart go-to-market strategies. Focusing on colleges allowed it to laser-focus on a niche and upset existing offerings (MySpace, Friendster, etc. who were struggling with Challenges 4 through 7. Facebook at the time was a ‘less boring upstart’ mentioned in Challenge 7). Only after it was the de facto school social network did it allow non-student users to join, in 2006.
- The following year, Facebook’s revenue began to grow exponentially. In 2007 annual revenue was roughly $150 million. Three years later, annual revenue was nearly $2 billion.
- With a humming revenue machine, Facebook continued to grow and push for ubiquity. But if you try to attract all people you risk becoming overly generic, leaving yourself open to threats from smaller upstarts who pick off chunks of your user base with more tailored and exciting products. This is Challenge 7: achieve ubiquity while not becoming generic, so you’re able to defend against new networks.
- Facebook viewed this challenge as two problems, each with their own solution.
- The first problem was vanquishing more interesting upstarts. Facebook’s strategy here was to simply buy anyone who became too bothersome.
- The second component of this challenge was building a product that works for everyone without being generic. Facebook’s solution here was the algorithmic feed, which automated the adaptation of their product to their users. Sure, the scaffolding around the content was the same for everyone, but the content itself was not.
- The first solution worked very well. The second worked excellently until it didn’t.
- With the algorithmic feed, there were as many versions of Facebook as there were users. So when something went wrong, there weren’t enough resources to address the issues. There were too many Facebooks to manage.
- Caught off guard, Facebook scrambled. Turning off the algorithmic feed would tank their engagement, reduce their advertising inventory, hinder their advertising performance, and leave them open to less boring competition. So contractors with massive work forces were hired to monitor content, essentially policing algorithms with countless humans. The tech and operations are catching up, but they’re not there yet.
- Now they put out fires as they arise, waiting for automated moderation to improve and to find out what Challenge 9, ‘Survive Regulation’, has in store.
I think this gauntlet framework works well for framing Facebook’s success. It works pretty well for Twitter, Tumblr, Instagram, Reddit, Digg, MySpace, Friendster, Yahoo!, and more. But since I first blocked out the gauntlet, a narrative has emerged that short-circuits it a bit: TikTok.
TikTok jumped from Challenge 3 to Challenge 9. Prior to the Trump administrations actions, TikTok was staffing up. It was running a familiar playbook: hiring tons of ad ops and sales people to scale their business model after acquiring and engaging a large, valuable audience. Snap did precisely this several years ago, going from just over a hundred employees to 900+ in a matter of months. TikTok was on it’s way to Challenge 4 (making money without pissing off your users) until the Trump administration sprung Challenge 9 on them.
And now we’re in uncharted waters.
The framework above assumes you’ve built a nicely humming revenue machine before you’re forced to tango with existential regulation. If TikTok signals the beginning of more aggressive digital nationalism, will this roadmap continue to make financial sense? Or have Facebook and Google timed the window perfectly (completing Challenges 1–8, globally, before facing 9) to become the de facto winners?
While this isn’t the explicit knighting of a monopolist, as predicted in Tim Wu’s The Master Switch, it may be functionally the same. If the US’s regulatory response to China’s own rules (Apple, Microsoft, Amazon, and other’s services run on state-run servers, just as TikTok’s may soon enough) spurs similar reactions from other governments the addressable market for new social network entrants is radically smaller than their established competitors. (And we haven’t even touched on how this manifests within privacy regulation.)
Can you start something that will become a global social network after 2020? Or will the costs needed to even take a shot at major markets be too large and complex to swallow for investors? Or will less and more expensive access to global markets simply prevent new networks from ever growing to challenge the established competition? I’m not sure, but one dynamic certainly has changed:
Previously, rapid success meant attracting the eye of your competition’s M&A team. Today, rapid success attracts competitors and regulators. Which makes this trial much more expensive, much earlier. The gauntlet has been short-circuited.