Network Effects and Virality are not the same – Re: Platforms

I’m reading the book Platform Revolution to better understand how platforms change markets. For the longest time, I thought that network effects and virality were the same thing. However, according to the authors:

“Virality is about attracting people who are off the platform and enticing them to join it, while network effects are about increasing value among people on-platform.” (23)

Photo by JJ Ying on Unsplash
Listen to this blog post here! Network Effects and Virality

I had assumed that what attracts people into a network is the value they get from the network. But in fact, this oversimplifies the interaction between user and platform. The reason for joining could be the same as sticking around. But often, it isn’t.

Suppose a marketing initiative gives users $10 to refer a friend to join. Or, registering could require the user to input their contact list to the platform, to be used for more invites. These examples show virality to grow a network, but not value creation within a network. Just because a platform has a network and goes viral, does not mean that it adds value to users upon joining. Virality used to get more hype, with value coming from how fast you could grow. But now, the value of platforms comes from how they retain users just as much as obtaining users.

Network effects depend a lot on the platform itself. For YouTube, virality could be sharing a video link. But network effect benefits would be the improvement to the video recommendation algorithm coming from more behavioral data from more users. This recommendation keeps users coming back.

It’s possible that a platform has both virality and network effects, such as Facebook: people joined Facebook because of the viral effect of “Fear of Missing Out.” Our friends were connected, so we wanted in as well. Once online, people stayed on for additional features like Facebook Groups and Facebook Marketplace, which grew more valuable as more people joined. Now, the long-term value of Facebook is “active” users, not just “new” users. And activity comes from those valuing the service and going back for the network effects.

As I continue learning about platforms, I’ll pay more attention to the difference between why to join a network vs. why to stay on it.

Educating the city of the soul – reflections on The Republic by Plato (translated Grube + Reeve) – OGB #7

Plato outlines significant ideas in his well-known work, The Republic. He writes how Socrates, the protagonist, uses the metaphor of a city to summarize the parts of the individual soul. Socrates focuses heavily on education as the way to nurture the parts of the city, and thus the soul. What does education teach us?

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First, Socrates separates the soul into three parts: 1. wisdom, 2. courage, and 3. desire. To better understand these soul parts, consider how we would build a city. At the bottom of the social hierarchy in our city are the craftsmen. They work at individual tasks to survive and follow their desires toward luxuries. In the middle are the auxiliaries, who redirect their spirit into arts that guide those desires of the craftsmen. At the top are guardians who rely on calculation and discipline to lead the rest of the people. They fight against external enemies and quell internal rebellions. A good and just city, and thus a soul, emerges when rational wisdom rules over the spirited courage and desire. Each keeps to its own type and task.

The education that the city and soul need includes music, poetry, and physical training. These activities create harmony between the rational part and the spirited part. Music and poetry nurture wisdom with “fine words and learning” and relaxes the spirit “through soothing stories.” And physical training makes both parts gentle through “harmony and rhythm.” (442a)

The result of this nurturing, soothing, and relaxing is that both soul parts learn their own role better. The rational part governs the appetitive part better, making sure desire doesn’t become too strong.

So, music, poetry, and physical training make the individual part become more into itself. Is this because this education contains the answers on how to become a more complete self? Or, because this education relaxes us into reassurance that leads us to self-knowledge? It could be a bit of both.

In my own life, I can think of songs that lead me to something new by weaving a story and teaching me new ways of thinking. But, I can also think of exercise that yanks my best effort out of myself, teaching me something new about my ability.

I’ll have to wait and read the remaining books of The Republic to find out what Plato says about this.

The four people riding with us on this Gamestop rollercoaster

There’s something happening in the markets.

Note: these are my views and not anyone else’s: not my employer nor future employers nor past employers nor anyone else other than myself. And these names are made-up.

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We are in the middle of something big. There’s been a lot of volatility around Gamestop and other stocks. Sometime soon, movies and blog posts and open letters will emerge summarizing this cultural movement and institutional reactions and the yet unknown end result.

We’re all struggling to explain it. But maybe we just need to not jump to conclusions too quickly. Pay attention to the details. What are the human ambitions behind each action? What connections are bursting at the seams- indicating their fragility to begin with? As we spiral down Poe’s maelstrom, let’s ride it out together and pick the most important things to carry forward and what to leave behind.

I grouped some reactions from the public into a few types for fun.

Today in the market we have:

  1. Rip-it Rocky
  2. Break-it Brad
  3. New-world Ned
  4. Cautious Cameron
Photo by Matt Bowden on Unsplash
  1. Rip-it Rocky: “I fucking love it.” Let’s stick it to the billionaires who do this every day. I’m YOLOing it all. I’m aping it to the moon for my bananas and tendies. This is the first real opportunity to beat the house that always wins. Props to the heroes who donated to charity, bought their parents a home, and paid off student debt. Let’s ride the wave, pump the dip, dump the rip.
  2. Break-it Brad: “They deserve it.” This is a ground-breaking momentum change in our markets, and there’s no going back. The financial and government world were too slow to react, and now the retail investor has broken the system. Already, we’ve seen hedge funds lose significant capital. Institutional investors are running scared. And they should be, because they’ve been able to game the system unhindered for a long time. And now when the tables have turned against them, now they want to change the rules? No way. This is going to be a complete catastrophe for the markets. And it’s about time. It’s time to move forward toward regulation for big investors and decentralization of financial institutions.
  3. New-world Ned: “It’s odd that this hasn’t happened before.” This seems like the first time that retail investors have banded together with so much volume and focus. No longer do fundamentals play a role in the valuation of stocks. In this new environment, the dynamics have changed. The fact that a stock is overly shorted could be the reason to run up the value. Or, some other reason could cause people to buy. With endless information at their disposal, the smartest retail investors predicted the rally. With lightning-fast communication over the internet, investors grouped around a common purpose and became powerful. Now, who can predict the next time this could happen. The group may appear in a different place with a different focus. It seems that big investors can be outsmarted by non-big investors. They’ll need to respect this risk much more now.
  4. Cautious Cameron: “I’m worried about the bubble bursting.” Desperate retail investors are the most at-risk to put more money in than they can afford to lose. Hawkish investors will take advantage of them like prey. And the desperate investor will lose. I’m afraid for my family and friends who bought GME stock just because there was a speculative run-up on the value. The stock price is bound to go back down because the inherent value of Gamestop hasn’t changed even thought the stock price has. As a result of this, there will be loss. And there will be regulation, but I’m not sure that will accomplish anything about what people are looking for since there are already many regulations in place. If anything, we need to prevent this bubble from happening again and affecting so many unknowing people.

We’ve seen holders holding and buyers buying and sellers selling. Who knows what the price of GME will be in two weeks. And who knows what we’ll be talking about then.

One thing is clear: no one can predict what happens next.