Platforms, Network Effects and Politics

How do you win in winner take all contests?  Network effects.  But, network effects are really really hard to get going.

What’s a network effect?  Additional users make a service more valuable for everyone.  When I search on a platform like Duck Duck Go, it makes it better for you.  There are also ancillary network effects.  In matching marketplaces, the more supply there is the better it is at attracting demand, or vice versa.  Two sided market models are a great example of platforms with network effects.

The cool thing is the “community” or network makes these platforms incredibly sticky.  Having a large community increases the barriers to entry.  If you were going to compete with Twitter today it would be awfully hard to knock it out.

Recently, Facebook, Google, and Twitter have received a lot of criticism because they are biased against conservatives.  This was no surprise to me.  Google, Facebook and Twitter are run by people that are pretty liberal both socially and fiscally.  They are mainstream media companies.

Can you tell me a mainstream media company that isn’t run by or isn’t very liberal socially or economically?

Some conservatives have said that all conservatives should just quit those platforms.  I have heard people say that there should be a “conservative Facebook” or “conservative Twitter”.  If it were a business that could work, they should start it.  My gut tells me that echo chambers don’t get mass traction and are far less valuable than platforms with network effects.  Linked In isn’t valuable if only one company has people on the platform.

Those platforms exist because they bring everyone value.  Although, if you want to hurt them, there are platforms to switch to.  Duck Duck Go offers really good search and it is anonymous.  It’s run by people that are pretty liberal, and so are it’s investors.  Ello is a fun social networking platform that offers an ad free experience.  I am going to guess that since they are based in Vermont, the founders have more in common with Bernie Sanders than Ronald Reagan.  Their investors lean left too.

Are we really going to start choosing which companies we patronize because of politics?

Seems dumb to me.  I don’t choose my friends that way and I don’t really choose which business I patronize that way either.  If the company brings you value, use it.  If it doesn’t, don’t.  The more important thing is transparency.  Now the cat is out of the bag on Google, Facebook, and Twitter.  Those companies haven’t been very transparent to the general public with their beliefs and how they affect the ways they run their business.  Conservatives know that they are being censored or manipulated.  Professor Gary Becker found companies that choose to discriminate have higher costs and don’t do as well as companies that don’t discriminate.

Populism tends to bring out really bad economic and fiscal policy.  This is why the decision by Obama today to raise tariffs on Chinese steel 522% is a bad one.  It’s also why I don’t agree with Trump’s economic agenda when it comes to trade.  Populism might help you fill a small niche in business. But, companies that engage in overt populism don’t generate network effects.  Eventually they die.