Social media needs to burn.
From its first days, the consumer computing and networking sector was synonymous with explosive growth.
Companies would spring up out of nowhere and grow to impossible scale overnight. The source of this rapid corporate gigantism was no mystery: it came from network effects.
A business, product or service enjoys “network effects” when adding more customers increases in value. Every Apple ][+ sold increased the number of people you could exchange data on floppies with; it increased the number of dealers who’d sell you accessories for your new home computer; and it increased the number of software authors and hardware companies who’d fill those dealers’ showrooms with new applications and peripherals for you to use.
Network effects are how Amazon got so big. They’re why platforms with App Stores — from games to mobile OSes — are so exciting for investors. And, of course, they’re why social media platforms exploded onto the scene in the 2000s and took over the world.
That whoosh you feel as a tech seedling becomes a towering giant overnight is heady and exciting, but it’s not permanent.
Because tech’s explosive network-effects growth is only half the story. The other half is implosive contraction, driven by low switching costs.
“Switching costs” are all the pain-points associated with switching from one product to another — throwing away your charging cables and apps when you switch phone brands, or throwing away all your friends when you switch social media platforms.
Non-digital products have intrinsically high switching costs. If you throw away your KitchenAid mixer and buy a Miele, you can’t take your attachments with you — not without the assistance of a skilled machinist who can custom-craft little dinguses to adapt them, at a price that will exceed the cost of just throwing them away and buying new ones.
But digital is different. The only computer we know how to make is the “Turing-complete universal Von Neumann machine” — that is, a device that can run every valid program we can write. The only computer we know how to make is the computer that can run every program.
That means that it’s always possible to create interoperable programs that can lower switching costs.
Microsoft once rigged things so that all your spreadsheets, memos and presentations locked inside proprietary office formats that was tied to its operating system.
No problem: Apple just had its technologists reverse-engineer those formats and make Pages, Numbers and Keynote, which meant that you could change OSes without losing your documents.
Every successful technology company has a story like this in its background. Today’s top makers of mass storage and other key computer components got their starts reverse-engineering the protocols used by IBM to connect its printers, drives, and other accessories and making “compatible” devices that they sold for a fraction of the price IBM charged.
When IBM made PCs, this pattern repeated itself: tiny startups “cloned” the IBM PC. The network effects that put millions of PCs into the world were undone by low switching costs, as users found they could move their applications and files from expensive IBM hardware to cheaper “compatible” systems.
And then it happened again!
The first computer I ever interacted with was a Digital Equipment Corporation PDP-11 system. It was 1977 and I was six years old. My dad — a computer scientist — brought home a teletype terminal (a keyboard and printer — no screen!) and an acoustic coupler (which let you use your standard Bell telephone to connect to a terminal to a distant computer), and let me talk to this $70,000 behemoth (about $400,000 in today’s dollars) from our kitchen table.
Twenty years later, the Digital Equipment Corporation became a division of Compaq, one of those PC clone companies. which had entered the market in 1982 with a “luggable” PC that sold for $2,995 (about $9,000 in today’s dollars).
DEC tried to remain relevant. It even founded Altavista, one of the first successful search-engines. But in the end, DEC burned, consumed by the regular fires of the fast-moving internet sector.
And so did Compaq. Five years after buying DEC, on the verge of bankruptcy, it was sold for parts to HP.
The fire comes for everyone.