A market for social capital: The theory and application of Status as a Service

A market for social capital: The theory and application of Status as a Service

In today's digital age, social networks have become an integral part of our lives. We use them to connect with friends, share updates, and even build our personal brands. But have you ever stopped to think about the value of your social status on these platforms? It turns out that status is not just a measure of popularity, but rather a form of social capital that can have real-world implications.

Value is tied to scarcity, and scarcity on social networks derives from proof of work. Status isn't worth much if there's no skill and effort required to mine it. This is why competition for relative status still motivates humans. What matters is less our absolute status than how we are doing compared to those around us.

To ensure a fair and meritocratic system, the curation algorithm of a social network must reward quality over quantity. It should not entrench those who have high status due to legacy or other factors. Overindexing on quantity can lead to a downward spiral in quality, scarcity, and value. It is important to foster a meritocracy where the best content rises to the top.

Creating a competition for social status is crucial for the success of a social network. This can be achieved through algorithms like Facebook's News Feed, which highlights popular content. The more visible social capital is, the better it is for scaling a network. However, it is important to note that sustainable networks are built on the utility axis rather than the social capital axis. Utility is harder to create but has longer-lasting effects. It is better to focus on utility to ensure the long-term success of a network.

Interestingly, it is often the most high-status or desirable people who leave social networks first. This phenomenon is known as the evaporative cooling effect. When these individuals leave, the product or service must have already moved as far out as possible on the utility axis to prevent a nosebleed in terms of user churn.

Transparency and consistency are important factors in the success of a social network. However, when a measuring stick becomes too public, it can have unintended consequences like users gaming the system. Goodhart's Law states that when a measure becomes a target, it ceases to be a good measure. This means that even if a measuring stick adequately expresses meritocratic quality, it can still have a reflexive effect on behavior. It is important to be aware of these pitfalls when designing a social network.

One challenge faced by social networks is reaching their ultimate number of contributors. There is often a ceiling on the supply side due to the art and skill of content creation. Even after this supply shock, consumers still outnumber producers by a significant margin. This is known as the 1% Rule, where only 1% of users actively create new content, while the rest are passive participants.

So how did Facebook differentiate itself from MySpace? It started with text status updates, which may not have been groundbreaking, but it offered something unique: social filtration. This combination of social facilitation and social filtration allowed Facebook to stand out and grow exponentially.

In conclusion, the market for social capital is a complex and ever-evolving landscape. Building a successful social network requires a focus on quality over quantity, fostering a meritocracy, and creating a competition for social status. It is important to strike a balance between public visibility and unintended consequences. By understanding these principles, entrepreneurs and business strategists can navigate the world of social networks and build sustainable platforms.

Actionable advice:

1. Prioritize quality over quantity: Ensure that your social network rewards meritocratic quality and doesn't entrench legacy users or quantity-driven metrics.
2. Foster a competition for social status: Implement algorithms or features that highlight popular content and create a sense of competition among users.
3. Focus on utility: Build a network that offers long-lasting utility to users, rather than solely relying on social capital. This will attract and retain a larger user base in the long run.