Broken Symmetry

Facebook and Ennui

Rick Bookstaber gives an interesting take on the alternative trajectories of society and Facebook over the next few decades:

I am not going to enter the discussion of how secure Facebook's position is, or how much advertising it can generate. Insread, I am going to discuss the implications of Facebook for our individuality as we increasingly embrace Facebook and similar systems that replace real interaction with the virtual, and the implications of this world for the success of Facebook.

The basic point is that either the world changes and Facebook become marginalized, or Facebook continues [to] thrive and we live in a world of existential alienation. ...

Interestingly, Facebook wins relatively few friends in Japan. I wonder how Bookstaber would interpret this in view of his thesis.

Square Cofounder an Omitted Coinventor of Patent Apps Owned by Wash. U. Professor?

Techcrunch reports:

In or about February 2009, Mr. McKelvey contacted his friend of 20 years, Mr. Robert Morley, Jr., to help build a prototype magnetic card reader that could be plugged into a cell phone input jack. Mr. Morley, a professor at Washington University, had previous experience working with magnetic card readers.

Over a period of several days, working in Mr. McKelvey’s glass studio and Mr. Morley’s laboratory at Washington University, Mr. McKelvey and Mr. Morley exchanged ideas regarding the design of the prototype card reader.

Square is one of the hottest startups in Silicon Valley, backed by Khosla Ventures GP (and former Facebook and YouTube CFO) Gideon Yu, and cofounded by Twitter cofounder Jack Dorsey. A recent hire was Keith Rabois, an early PayPal exec who had a successful exit at Slide most recently. Keith was also an IP litigator back in the day.

Based only on the allegations in the complaint, it looks to me like Square has a potentially viable claim for co-inventorship and co-ownership here. I got curious to see just how deep the rabbit goes by looking up to see whether Morley had any federal funding for his research at Wash U. His CV doesn't show any recent federal funding, which is lucky for him, since whatever he might get from Square in resolving this dispute could escheat to Wash. U. depending on how Stanford v. Roche gets decided.

Facebook and Privacy

Via Bayesian Heresy, this quote from Susan Herring:

What the statistics point to is a rise in Facebook, a decline in blogging, and before that, a decline in personal Web pages. The trend is clear, Facebook is displacing these other forms of online publication.

It's seems only five minutes ago that Facebook took off because it offered its users a simple, foolproof way to share their lives online without worrying about unknown strangers capitalizing on personal information to perpetrate fraud or abuse. I guess nobody much cared when Facebook opened signups to people without university addresses because it didn't matter so long as only people with university addresses could see your info.

At bottom, the value that Facebook offered its users was simple, easy to understand privacy on the web, and not (at least not at bottom) the network effects of having other friends on Facebook. Friendster and MySpace offered network effects too, and look at where they are now.

Zuckerberg ought to take a page from Apple, and refocus on the core value proposition that Facebook offered: a simple, clean, interface that gives individuals users understanding and control over how they share their information with other people online.

Hundreds of millions of people won't stop using Facebook because it isn't as good as it used to be. But Facebook's clear goal of becoming the market-share leader in social networking online is in jeopardy now.

So Herring was right -- but maybe not anymore.

Externalities and Semi-closed Platforms

Jason Calacanis warns companies away from the Facebook platform because of the uncertainties associated with how Facebook will share revenue with third-party application developers.

I don't disagree with many of the points he makes.  There is considerable uncertainty at this point as to how exactly revenue will be shared, what metrics will be used, and so on.  And there is no doubt that the companies that can successfully generate their own user base will monetize those users at higher margins than the companies that must rely on Facebook for customer acquisition and distribution.  That's the deal.

Rather I want to point out that Jason seems to ignore an important class of potential economic benefits for users that can be achieved by a semi-closed platform.  These benefts may enlarge the economic pie enough so that the deal is still better than what companies could achieve by monetizing at higher margins (with a smaller user base).

As I have eluded to in an earlier post, Facebook as a semi-closed platform promises to solve some of the collective action problems associated with user-generated content on the Internet.  Facebook is mostly spam free because it is a semi-closed platform.  An analogy is that Facebook:books what the open Internet:magazines.  We can expect to see a better valuable content/page ratio (and hence more users and more time-spent) on Facebook because it is a semi-closed platform.

What does the Facebook News Feed have to do with the Price System?

In The Road to Serfdom, F.A. Hayek observes that the price system:

enables entrepreneurs, by watching the movement of comparatively few prices, as an engineer watches the hands of a few dials, to adjust their activities to those of their fellows

Hayek probably has the train engineer in mind, trains seeming a favorite source of examples for mid-20th century economists.  The point is that divisions of labor, which permit more fine-grained and complicated activities within an institution (or the economy at large), require quicker feedback, which the price system permits.  This key strength of the price system is achieved through its compact representation of aggregated information about value.

But the compactness of price information also creates a key weakeness:  price collapses the measurement of value, which in general might have as many independent dimensions as the number of market participants, into a single dimension.  The price system thus tends to work best in markets where the measurements of value have lower dimensionality -- i.e., where different market participants are more likely to measure value using similar input data, with similar means for processing that input.

The price system and its single dimension is at one end of a spectrum with the bartering system at the other.  In the bartering system, there is no aggregation of information about value, and hence no information is lost in the collapse of the real multi-dimensional phenomenon of value into the artificial, single dimension of price.  The bartering system works poorly, however, when the goods are "lower-dimensional" in how their value is measured by market participants.  The extra transactions costs (of time) associated with the bartering system are hardly worth the information preserved.  For example, every holder of wheat does not have a unique perspective on how much wheat (much less that particular grain of wheat) is worth.  Yet something like the opposite is true of transactions involving human capital, such as the market for a potential spouse.

What if there were a more multi-dimensional means for aggregating information about value?  What would that look like?  My suggestion is that it would look something like the Facebook News Feed.

For non-Facebook users, the Facebook News Feed provides status updates and links to multimedia that provide new information about your friends on Facebook.  New information about myself that I add to my profile is automatically pushed out to all my friends, usually showing up as a single line on their News Feed.  Now the value of a friendship with me must be among the most difficult things to measure in a single-dimension.  Yet the value of my friendship, like the value of wheat, is going to depend in part on how many others are offering you the chance to know someone like me.  If all of your friends love to go kite surfing, you may be indifferent to whether I too enjoy kite surfing.  On the other hand, if it turns out that I'm your only friend who shares your taste in medieval English legal history, we may be spending more time together soon.

Notice how the Facebook News Feed falls somewhere in between a pure barter system and a pure price system.  Unlike a pure barter system, I don't have to transact bilaterally with everyone who might be interested in what I have to offer.  Unlike a pure price system, I don't have to submit to my value being collapsed into an almost inarticulate number.

Notice also how the News Feed system requires market participants to internalize the positive and negative effects of their status updates.  For example, by posting photos of yourself at a party, you may get more party invitations, but fewer job offers.  This is how the News Feed is distinct in an important from other social networks, such as Wikipedia.  Professor Sunstein had an insightful post related to this about six months ago.

Now what if instead of collecting information about the relative value of various friends, the news feed collected information about the relative value of various projects within a large organization, or the relative value of different programs within government?