Saturday, October 1, 2011

Google+ is Doomed

A number of people on Facebook have speculated about how Facebook better watch its step and fly right, or else Google+ will replace Facebook just like Facebook replaced MySpace. But I'd like to argue that that's not going to happen. Google+ is almost certainly going to die a bleak, lonely death, unnoticed and unmourned, while Facebook is going to rule your social networking world, pretty much whether you like it or not. And that's due to two factors: network effects and market saturation.

What are network effects? In economics, a product has "network effects" if the product is valuable in proportion to the number of people who use it. If more people start to use it, it becomes more valuable to each of those people. If fewer people use it, it becomes less valuable to each of those people.

Telephones are the classic example of a product with very strong network effects. If you own the only telephone in the world, you own a product that is useless to you (I'm talking about traditional, non-smart phones). A telephone only gains value when other people start buying telephones so that you can call each other. On the other hand, the bottle of wine in my refrigerator has almost no network effects. Your choice of beverage has very little effect on the value I get from a glass of wine.

Social networking services, like Facebook or Google+, obviously are goods with extremely strong network effects. The service that all of your friends are on is much more useful and valuable to you than one that only a few of your friends are on. Putting it another way, a service which your friends check and post to regularly is much more valuable than one which they check and post to infrequently.

From this perspective it's obvious that fancy new features, like the Google+ circles, aren't really very important. No matter how comparatively poor the features of Facebook are, I can actually use those features with my friends. No matter how cool the features of Google+ are, most of my friends don't spend much time checking Google + so I can't use these new features with my friends. So what's the point? A shiny, chrome-plated telephone with moving, flashing lights is still useless if no one else is on the same telephone network. Google+ loses.

But wait, you say, MySpace used to have a huge lead in users over Facebook, and yet Facebook rose up and crushed MySpace. So why can't Google+, or someone else, just rise up and crush Facebook?

The answer to that is market saturation. When Facebook challenged MySpace, only a tiny fraction of the American population was engaged in social networking. Most people didn't even fully understand what it is. For products that depend on network effects for their value, this meant that there was a lot of unclaimed value out there when Facebook took MySpace on.

Moreover, MySpace made a strategic mistake that cut if off from a lot of that unclaimed product value. MySpace marketed itself as a place where people (young people in particular) could empower themselves by shaping or even inventing their identities in ways that are impossible in the real world. This mash up of social networking with fantasy identities alienated a large part of the potential, untapped market that was out there. Adults tended to sneer at MySpace as something for teenagers.

By insisting on real identities, Facebook stripped away the fantasy identity element and offered adults the real product that was obscured by MySpace's  strategy: a quick and easy way for communities of people to communicate with each other. Facebook was thereby able to build its network effect value by grabbing up users who weren't on MySpace. And Facebook was able to find enough new users to match MySpace's network value, and then surpass it.

But the social networking market is now saturated. Everyone who is even vaguely interested in using social networking is on Facebook. That means that Google+ needs to pry each of its customers away from an existing competitor which offers them more value for the same price. That's an impossible task.

It isn't a matter of whether or not you are registered with Google+. It's a question of how much you post there and how much you friends post there. Look at your options: if you cross-post everything to both Facebook and Google+, then I'm not going to waste time looking at both of them, I'll just stay with Facebook. Google+ loses. If you stop posting to Facebook, then you are facing a long period of being cut off from communicating with your friends in order to gamble that eventually your friends will follow you over. Worse, you would be making this sacrifice in order to gain some slightly better features in Google+. That doesn't sound like a good gamble to me. So in this case, you come out the loser. You could also split your time between Facebook and Google+, but that just means that your Facebook friends miss part of your posting, while you miss a lot of their posting. Everybody loses. Once network effects have really kicked in, they're a bitch.

Or... we can admit that the social networking wars are over. Markets with strong network effects almost always turn into monopolies, and in this particular market, Facebook won the prize. Don't get me wrong: I don't like Zuckerberg or his company. But I can read the posting on the wall.

The only hope for Google+ is for Google to figure out some way to pull a microsoft, and use their search engine power to twist people's arms into using Google+. Microsoft used their control of the DOS/Windows operating system to take over one software market after another, from word processors to browsers. Google might find a way to make you go through Google+ if you want to get search engine results, and that would change the game. But short of that strategy, Google+ will be gone in a few years, at most, and you'll know it's gone when your friends mention it on Facebook.

Saturday, September 3, 2011

Why You Won't Get Rich from Not Paying Taxes

I have a secret to share: I seriously considered becoming a Republican in the late 80's. I just figured it was time to take a fresh and critical look at the various government programs that the Democratic Party had erected since the New Deal. We had had a steady expansion of government for decades, and it was probably time to take a break from that and put some serious thought into identifying what hadn't worked and pruning it back, as well as considering how we might improve the things that had worked. From a strictly taoist perspective, after the left-wing surge of the Sixties, it seemed like we could probably benefit from pausing and having a look at things from the other perspective. But then Newt Gingrich and Movement Conservatism came along and that put an end to any thoughts of affiliating with the GOP.

Tuesday, August 16, 2011

Why Unions Should be Supported by the Government

For roughly the last 500+ years, ever since the Golden Age of the Dutch Republic, just to pick a starting point, Western civilization has created laws and institutions to make it easier for capitalists to combine and coordinate their money through corporations.

When a lot of money is collected into a single entity, like a corporation, that entity has an excellent bargaining position in negotiating wage agreements with individual workers. Since most individual workers are much more replaceable than that big wad of capital that we have legally enshrined as a corporation, the corporation ends up negotiating a really good deal for itself when it can negotiate with workers one-by-one. The modern economy is very much a team effort where we all depend on everyone else to hold up their end, but most of the money ends up going to the capitalists, because they combine with each other while workers, operating as individuals, end up in competition with each other. And, as I said, we've spent 500 years crafting laws and building institutions to make it easy for capitalists to combine their efforts.

Which is why it is very appropriate for the government to pass and enforce laws that make it easy for workers to combine and negotiate as a group when they're negotiating with corporations. These combinations of workers are called unions, and they are really one of the few ways that you can level the playing field between workers and corporations.

Back in the glory days of the New Deal, when the Federal government actively supported unions (and taxed the rich, by the way) we had a distribution of income in this country where the middle class actually received most of the income in the nation. There was a class of rich people, but as a group they didn't receive most of the wealth. They just received more, as individuals, than middle class people received as individuals.

But America has abandoned unions (and abandoned taxes on the rich) and now the American middle class as we knew it is wrecked, and most of the income goes, year after year, to people who already have most of the income. Because that, kids, is how the free market works.

And that's why unions should be supported by the government. I'm not saying that unions were or are perfect, or that there aren't reforms and improvements in unions that we should demand. But without unions we will never again have the America where I grew up, the America built around middle-class people who were proud to work for a living and who made a good living by working for a living.

Sunday, February 20, 2011

This great example from Robert Reich puts the whole issue of income concentration into such clear perspective.

Last year, America’s top thirteen hedge-fund managers earned an average of $1 billion each. One of them took home $5 billion. Much of their income is taxed as capital gains – at 15 percent – due to a tax loophole that Republican members of Congress have steadfastly guarded.
If the earnings of those thirteen hedge-fund managers were taxed as ordinary income, the revenues generated would pay the salaries and benefits of 300,000 teachers. Who is more valuable to our society – thirteen hedge-fund managers or 300,000 teachers? Let’s make the question even simpler. Who is more valuable: One hedge fund manager or one teacher?

We're in Year 21 of the Reagan Era, where we have steadily reduced taxes on the wealthy, and reduced the government services that those taxes used to pay for, in a determined effort to conjure up the magic, free market pixies who will make everything wonderful once they're not frightened away by nasty, scary democracy. But all we have to show for our efforts is an economy where the rich have gotten so much richer that merely by requiring 13 guys (and, yes, they're all guys) to pay the normal tax rates that the rest of us pay, you would get enough money to cover the salaries of 300,000 normal, middle-class people. And let me be real clear here: I'm not saying that 13 guys make as much money as 300,000 people, I'm saying that roughly 35% of the income of 13 guys equals the full income of 300,00 people. Clearly, the free market magic is working for some people...