Let’s Get Sociable

22 06 2012

Once upon a time, in a state far away, in a time long before cell phones and ubiquitous internet, I had an undergraduate major in economics. I found the theory of the dismal science to be much to my liking, and thought that it complemented my marketing major nicely. Never mind that econ majors are able to understand the evening news in all its gory detail. Knowing some economics simply helps explain everything better. After all, it governs our daily lives, from paying bills to being gainfully employed to saving for retirement.

One thing I noticed early on is that as an industry matures, it almost invariably heads toward oligopoly, which is when a handful of companies completely dominate a category. There may be dozens of hangers-on, but they have little or no power in the grand scheme; the elite powerful rule the roost, and their decisions become mandate for the smaller companies trying to survive.

In the case of social media, the case is becoming even more intensified, with Facebook and Twitter comprising a duopoly. The two combine for well over one billion users worldwide, and make it very difficult for others to compete. Which explains why I found it refreshing today to read about ten niche social networks still very much alive and well.

Never mind Instagram and Pinterest (with a combined 40+ million between them). No, these are much smaller yet, and serve very specialized interests areas. Like Moms. Athletes. And beer drinkers.

I’ll let you figure out which one I use.

Some may wonder how in the world these upstarts could ever hope to make it to next month, much less than 2013. Some may also wonder why we need them in the first place, especially since Facebook has evolved so quickly into a network of networks. I belong to many public and private interest groups on Facebook, and interact with people on those networks who are not my “friend” at the top level. Why do we really need a separate social network for runners? Couldn’t runners simply all hang out in their own FB group? Perhaps more importantly, in how many social networks can a person possibly remain engaged?

Economics, though, also helps provide an answer to the first question. If a company becomes too successful, it can attract the attention of the Department of Justice, who might stage an inquiry into antitrust violations.

Yes, there are select companies that are allowed to have true monopoly protection (our basic utilities are good examples), but otherwise, the government frowns upon such market power. Oligopolies are allowed to exist as long as one company does not get monopoly power. And if Facebook doesn’t watch it, there could be trouble.

It is little different from the power Walmart is accused of having. It is little different from the problems Microsoft had defending itself from similar accusations.

But it could be worse for Facebook because it has become a parallel internet. The internet itself is a digital entrepreneur’s paradise, while Facebook is a private party. And while companies and organizations can still create Pages at will for no charge, advertising on social networks is becoming increasingly concentrated on Facebook.

Herein lies the rub: Just like it is in Walmart’s and Microsoft’s eternal best interests to have some competitors trying valiantly to compete, it is good for Facebook that there are alternate social media sites. If anything, it can keep the DoJ off its back.

Sure, Facebook could offer the same functionality and features to users of these niche sites. And Facebook may very well be interested in buying one or more of them in due time. But life will be better for everyone if the competition isn’t all gobbled up.

There is also the possibility that handsome profits can be realized by residing on the long tail of computer mediated communication (see Chris Anderson’s The Long Tail for inspiration). A well-managed FastLoop.com or Untappd could provide not only benefits and enjoyment for users, but also pay dividends for owners.

And that’s an economic story I’d like to see on the evening news.

Dr “Sign Me Up” Gerlich



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