The problems with social networks | Erik Brynjolfsson and Lex Fridman | Summary and Q&A

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November 29, 2020
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Lex Clips
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The problems with social networks | Erik Brynjolfsson and Lex Fridman

TL;DR

Social media platforms have different revenue models, with advertising being the most common. However, there is a need for experimentation to find the best approach that balances user preferences, profitability, and the spread of truth.

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Questions & Answers

Q: Why have social media platforms like Twitter and Facebook not experimented with removing ads for money?

The economics behind social media platforms involve various revenue models, including ad-supported systems. With zero marginal cost, competition pushes prices down to zero, making advertising a profitable model. However, some platforms are now experimenting with alternatives.

Q: What are some revenue models other than advertising?

Other revenue models include bundling products or services together, voluntary contributions like Wikipedia’s donations, and charging subscription fees like The Wall Street Journal and The New York Times.

Q: How does user preference affect revenue models?

Revenue models depend on the shape of the demand curve. Generic news and widely demanded goods are better suited for advertising models, while niche products with a high value for a small group may be more profitable through charging users.

Q: Can a mixed revenue model work for social media platforms?

Yes, a mixed revenue model like YouTube's, which allows users to choose between ads and subscription, can be successful. This approach caters to individual preferences and can be a win-win for content providers and consumers.

Summary & Key Takeaways

  • Social media platforms, except for YouTube, have not experimented much with removing ads for money.

  • Different business models, such as ad-support, bundling, volunteerism, and donations, can be used for revenue generation.

  • Economic theory suggests that the shape of the demand curve determines whether a platform is better off with charging users or relying on advertising.

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