Amerika

For those who wonder what went wrong with the internet, consider that global interconnectivity massively magnifies network effects, which are the rise in value of a product to the consumer as more people use that product.

The basic model of network effects is the shopping mall. Yes, you buy things there, but you mostly go there to see your friends. The more of your friends and potential friends (“peers”) who show up at a given mall, the more likely you are to shop there.

With social media sites or online games, network effects both direct and indirect multiply:

The network effect is a phenomenon that increases the value of a product or service as more people use it and relate their experiences to others. This engagement contributes to the increased value and reach of a product.

There are two main types of network effects: direct and indirect. Direct effects occur when a product’s value increases as the number of users increases. Telephones were the first example of an item with direct network effects.

Sometimes one product can spur new technology or innovation. When the use of a product leads to new items, indirect effects occur. The original item becomes more valuable along with the supporting items. Video gaming systems and subsequent games are an example of this.

To translate to the internet, or maybe even the telephone, users adopt a technology because of the other people they can reach through it. The more people who have telephones, for example, the more useful and later necessary having a phone becomes.

This means that the value of the product depends on the network effect of its audience, and over time, it becomes more valuable:

According to the online course Economics for Managers, the term network effect refers to any situation in which the value of a product, service, or platform depends on the number of buyers, sellers, or users who leverage it. Typically, the greater the number of buyers, sellers, or users, the greater the network effect — and the greater the value created by the offering.

Some describe this as an ecosystem because like capitalism, it depends on its audience, including culture. When a culture and audience want to connect with each other, they pick up the phone, go to the shopping mall, or log on to social media.

The technology by itself does not achieve much until its audience arrives, and then it becomes more valuable until an ecosystem is created where people depend on it. Eventually it becomes a need because it is their published contact, preferred hangout, or where they keep their data.

These ecosystems create the “network” in network effect, which eventually links users, the product, and its use like a monopoly:

Network effects describe a set of relationships with an ecosystem that make the overall ecosystem stronger.

One of the clearest examples of network effects is in social media; platforms grow more valuable as more users join.

Not only does it become more valuable, but the increased numbers of people on a platform incentivize more people to use it as the network expands.

At some point, people ask for your telephone number, tell you to meet them at the “usual place,” or give you their social media account name without thinking that you are not using the service. Like a utility, it becomes a cost of doing business.

This happens when the network ecosystem reaches critical mass:

A network effect is not when a product or service goes viral. Take for example the game Angry Birds which did grow quickly in popularity. Angry Birds grew fast but didn’t necessarily increase in value with each new user.

The effect is also not the same as having a large user base without profitability. Twitter had a large user base but was never able to translate that into profitability. A network must be able to monetize its user base to qualify as a network effect moat source.

Achieving critical mass is also essential to a network effect. Think back to the days of MySpace, one of the first social media platforms. A network must reach a point where its value exceeds that of the standalone product and competitors’ offerings, which MySpace did not.

At the point when the product goes from useful to essential, its relationship to the market changes to be more like that of a utility or monopoly. At this point, it has become a property like public lands or roads which everyone depends on.

This situation is as ripe for abuse as totalitarianism but we do not recognize this because technically all parties are involved of their free will. You probably could exist without a telephone, for example, although it would be harder and more expensive.

Free speech on the internet is crucial for this reason. The internet is the new town square, streetcorner, or pub; its function more resembles that of government or culture than a private product. Media like newspapers have the same relationship to our society.

When you think about it, civilization itself is the original network effect. It gains value as people join in, but then the social contract becomes an adhesion contract:

Adhesion contracts are often used for insurance, leases, vehicle purchases, mortgages, and other transactions where there is a high volume of customers who fit a standard form of agreement.

For instance, with an insurance contract, the company and its agent have the power to draft the contract, while the potential policyholder only has the right of refusal. In other words, the customer cannot counter the offer or create their own, new contract to which the insurer could agree

Like most things on the far side of their arc over time, this inverts the social contract:

social contract, in political philosophy, an actual or hypothetical compact, or agreement, between the ruled or between the ruled and their rulers, defining the rights and duties of each. In primeval times, according to the theory, individuals were born into an anarchic state of nature, which was happy or unhappy according to the particular version of the theory. They then, by exercising natural reason, formed a society (and a government) by means of a social contract.

Although similar ideas can be traced to the Greek Sophists, social-contract theories had their greatest currency in the 17th and 18th centuries and are associated with the English philosophers Thomas Hobbes and John Locke and the French philosopher Jean-Jacques Rousseau. What distinguished these theories of political obligation from other doctrines of the period was their attempt to justify and delimit political authority on the grounds of individual self-interest and rational consent.

There is no rational consent when your options are to join a civilization and its government, economy, and legal system, or hop in a boat and survive on the open oceans. With the network effects of civilization, the social contract becomes an adhesion contract.

You cannot negotiate terms with a government or worse, a popular trend or political bias. If the herd believes that death metal fans must die, they will change the laws and soon you will have no choice but to flee as a stateless person or die at the hands of their new laws.

Similarly, if you want to exist without Facebook, you can in a technical sense only because you will fall out of contact with friends and family just as surely as if you canceled all of your telephone services.

Society aspires to be fair, but the more it succeeds, the more controlling it becomes in invisible ways. Eventually your culture becomes a property and succumbs to the tragedy of the commons, followed by your genetics.

The only way around this seems to be a society based on privilege and duty instead of rights and contracts. That is, the society selects those who can achieve its ends, and excludes everyone else, which requires a strong aristocratic presence not a bureaucracy.

If anything, this example shows us the crisis of overpopulation. With too many humans, there is no place for extra humans to go, so they swell up societies and eventually take over, which fails because of their lower level of competence.

Tags: adhesion contract, aristocracy, civil rights, crowdism, natural rights, network effects, social contract