Network effects: You may swipe out if you like but can never leave
There’s a special reason that social media apps with the most users are so hard for people to give up
Tesla and SpaceX founder Elon Musk had a terse tweet for his 48 million followers: “Use Signal". Edward Snowden, the world’s most famous whistleblower and privacy advocate clarified in a tweet of his own: “That’s @signalapp, for those who don’t speak Elon." Someone asked him why use Signal, and he had a simple though chilling response: “I use it every day and I’m not dead yet." The implication being that if he used WhatsApp, people would have been able to trace him through its owner, Facebook, a company admired and reviled in equal measure.
This entire kerfuffle started with an innocuous announcement by WhatsApp on its new ‘privacy’ policy in early January 2021. This new policy would let it share data on battery-level information, browser records, IP addresses, and network and phone number details with its sister network Facebook. While, significantly, this did not include the content of chats, all hell broke loose. Suddenly, every WhatsApp user one knew wanted to move off the app. Signal and Telegram emerged as the favoured destinations, with Signal, driven by Musk’s tweet, rocketing to the top position on app stores. Signal was co-founded by Brian Acton, who founded WhatsApp and quit it in disgust after Facebook started violating his principles for it. The end-to-end encryption protocol he created for Signal is the same that is used by Telegram and WhatsApp, so content privacy is bullet-proof in all three.
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WhatsApp groups resounded with calls to go for alternatives. Killing one’s WhatsApp account became a noble calling, as droves of people opened Signal and Telegram accounts. Until they did not. A few weeks on, amid extensive damage-control announcements from WhatsApp, people started sneaking back there. While they found every feature they wanted on other apps, they couldn’t find their friends, and there was no one to talk to. As a tweet from a frustrated user complained: “There was only privacy in Signal, no network." This begs the question of why platforms like WhatsApp or Facebook become so sticky and addictive. What is it in them that makes them so difficult to leave?
The answer lies in what platform pundits call ‘network effects’. Defined as the concept where each new user on the network increases the value of the service for all others, it is notoriously difficult to achieve. More users mean more value creators, and more of these, in turn, attract more and more users or value realizers, generating value across the entire network. Much like Moore’s Law that drives computing, the law that drives the network effects of social media is Metcalfe’s Law. While the former is linear, with computing power approximately doubling every 18 months, Metcalfe’s Law is exponential, with the value of a network increasing by the square of the number of people in it. A network’s growth and value, however, turn hyper-exponential when its users interact with one another (think WhatsApp groups). This is called Reed’s Law.
Network effects are driven by four principles: Switching costs, economies of scale, brand habit and proprietary tech. Switching costs reflect the pain of moving from one network to another; think of creating the same group of friends on Signal that was on WhatsApp. If switching costs are high, people do not move. Thus, new networks try their best to reduce or eliminate these costs. Economies of scale keep a business’s per-user costs low and let a leader like WhatsApp outspend its competitors, denying them scale. A brand habit, as the term suggests, gets formed when people get used to a brand’s identity and user experience and find it difficult to adjust to a new one, thus drawing them back. Finally, most big networks develop proprietary algorithms (say, the recommendation tools of Amazon), which cannot be replicated by a newbie. Associated with network effects is the concept of critical mass: In our context, a certain number of users after which the network becomes self-perpetuating. A minimum number of users are needed for more to come in and early adopters to stay. With 2 billion active users globally, WhatsApp mass smothers the 15 million odd of Signal, and doesn’t let the latter lure them away.
So, is there no hope for a new social network? For an answer, all we need to do is to hark back to MySpace, or AOL, or even BBM. Social networks do not last forever. Even today, by some measures, Facebook has begun its decline. Web 3.0 networks with explicit data-sharing and incentives for creators are taking their first tentative steps. Until then, however, trying to exit these colossal networks is a bit like being a guest at Hotel California: You can check out any time you like, but you can never leave…
Jaspreet Bindra is the author of ‘The Tech Whisperer’, and founder of Digital Matters
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